Financing multifamily investment property is something many of my student-investors struggle with. They think that they need many thousands of dollars in cash to get into this type of investment.
You need to think creatively about how to use money from other sources to put together the structure for buying a multifamily investment property. That has been the very core of my learning and building the sound foundation of my teams and the four companies.
Sellers who have apartments that are suffering from poor management and low occupancy are one place to look, especially in emerging markets. I always like to search for these deals in C+ or B neighborhoods. I hardly buy anything in D neighborhood due to the risky and difficult nature of collecting rent.
How to buy multifamily investment property with no money down
Banks and lending institution are interested in knowing the cash flow from multifamily investment properties after all the expenses. That is the basis for what they lend on. They want to see the difference between the property’s gross income and gross expenses.
Ok, you say, so how do I do this with no money?
FIND A HIGH NETWORTH SPONSOR OR PARTNER
This strategy works nicely, where you can look through all your relatives, close friends, colleagues and inner circle of influence to find an individual(s) who can partner with you with the cash and net worth and you bring to the table the sweat equity, learning, skills, experience, drive and hard work in pulling the deal together. You may need to give them 20-30% of the General Partner side of the profits. And you may only need that to get started.
In our case, my partner and I did not have much money and we reached out to an individual who trusted us and believed in us and our drive to make things happen. This individual loaned us $100,000 at 6% interest only for a year.
Here is what Dave Lindahl writes on earlytorise.com as an example.
“If you don’t have a down payment, you still have the option of using a hard-money lender instead of a bank. Most hard money lenders will loan you 100 percent of the loan amount, as long as you buy the property below 65 percent of replacement cost.
“That may sound difficult at first, but think about what it means: 65 percent of after-repaired value. Say you buy a property for $650,000 that has low rents or low occupancy. Once you increase the rents or occupancy, that property may be worth $1,000,000 or more. In that case, you’ve just bought your first million-dollar property with no money down.”
Owner Financing
The most common way to buy a multifamily investment property with no money down is to use owner financing. This occurs when the current owner agrees to finance either all or some part of the purchase price, instead of getting the cash now.
You’ll be surprised how many people own their properties free and clear and are willing to finance the entire amount or a good portion of the mortgage. Usually, though, you will be getting secondary financing from the owner. That means you will get the majority of the money (the first mortgage) from another source, like a bank, and the seller will give you the rest in the form of a second mortgage.
Borrow From A Private Lender For Down Payment
If you’ve got a great deal, but don’t have the money for a down payment, find a private lender. This is an individual that has extra money set aside that you can use for your purchase.
This person can be a family member, friend, dentist, doctor, dry cleaner, a member of your real estate investment club, etc. Private investors are everywhere; you just need to start asking.
What do you ask for? Ask if they have money in an IRA or a savings account that they would like to get a return on, of 8–10%, secured by real estate. This is very appealing to lots of retired or very busy professionals who would love to get cash flow coming each month lot more than what they can earn in interest in CDs or Bank accounts.
After you get one or two lined up and you start to use them successfully, watch what happens: They will tell their friends, who will tell their friends, and so on. It’s human nature to brag at cocktail parties or at the gym about what a great investment you just made. Before you know it, you will have all the funds you need, and your business will explode!
Don’t partner with just anyone!
It’s imperative that you choose the right partner to get the money from. It can be the right relative, a long-time friend, or business associate. It’s highly recommended that you get a coach or an experienced mentor.
Doing Due diligence on the multifamily is also very essential. It’s the job of the General Partner and sponsors to find all the defects in the exterior and interiors of the buildings. Apart from that, analyzing financial data is also vital.
Definitely, do the legal structure of your partnership, make sure you are protected. It’s important to be smart going into a partnership, and it’s also important to be smart legally with the partnership. Spell it all out so there is no question later.
Get good legal advice
I have always felt since we started 12 years back that having a legal counsel is so important to avoid mistakes and challenges later in structuring and running of the businesses. We used a service called Prepaid Legal when we started (I think it’s called Legal Zoom now).
So get going and don’t wait on the sideline even if you don’t have money to start in acquiring a Multifamily Investment Property. This is the perfect investment vehicle for a great lifestyle and earning of passive or active cash flows!!!