Financing 2-4 Unit Rental Property
There are multiple ways to finance 2-4 unit rental property:
Permanent Financing - Loan terms generally ranging from 15-30 years
Conventional Residential Loan - Properties with fewer than 4 units are considered residential and can be financed with a typical residential loan. 5 units and above are considered commercial. A downpayment of 15-25% is generally required. Rates are generally very competitive, especially if you plan to live in one of the units. You can get these loans through a traditional mortgage lender.
FHA & VA loans - These loans are backed by the Federal Housing Administration & Department or Veteran's Affairs - A much smaller down payment / no down payment is required. Often times a seller won't want to go through the trouble of accepting a buyer using a FHA loan so these are used less often.
Bank Loan - Banks will make a balance sheet loan on these product types. Down payments are generally around 25%
Specialty Lenders - There are some financing groups that specialize in non-recourse lending in this product type (meaning if you default they take the keys from you but don't go after you personally). Because you do not provide any sort of personal guaranty on the loan, the leverage on these sorts of loans is cash flow driven (more cash flow = higher loan proceeds). These lenders are a great resource when you have held investment properties for a long period of time and the values and cash flow have increased substantially since acquisition. We work with these lenders and can make an introduction if this would be helpful.
Temporary Financing - Often times buyers will purchase an investment property with the idea of renovating and flipping so they would like to get a loan to finance acquisition and construction costs for a short loan term (1 year to 18 mths).
Bridge money / Hard money - There are often private lenders who have funds available to finance the renovation of the project. The money is often lent on an interest only basis (you just make interest payments, no principal payments) and the term is generally 1 to 2 years. Rates generally range from 8-15% interest only depending on the borrower's credit and experience. They will base loan amounts on overall project cost.
Specialty Lenders - There are some financing groups that specialize in non-recourse lending in this product type (meaning if you default they take the keys from you but don't go after you personally). These groups often have bridge to permanent financing options available.