In the world of multifamily investing, your strategy and the size of the properties you are working on will largely determine the best financing option for you. In this article, we'll explore the most common financing methods, including conventional financing and hard money loans, and discuss the pros and cons of each to help you make an informed decision about which direction to go. STABILIZED VALUE ADD VS CONVENTIONAL FINANCING: THE TRADITIONAL ROUTE Conventional financing refers to loans that are not insured or guaranteed by the federal government. These loans are typically offered by banks, credit unions, and other financial institutions. Conventional financing is most suitable for stabilized properties. AN INSIDER’S GUIDE TO FINANCING YOUR MULTIFAMILY DEALS
Lower interest rates Longer repayment terms Potential for lower fees
Stricter qualification requirements Longer loan processing time Less flexible terms
HARD MONEY FINANCING: THE FAST AND FLEXIBLE ALTERNATIVE What are hard money loans and why are they used? Hard money loans are short-term, asset-based loans offered by private lenders. They are most commonly used for 2-4 unit fixer-uppers and value-add deals involving significant rehab on 5+ unit properties. Most hard money lenders also have long-term, buy-and-hold rental programs as well.
Faster approval and funding Less stringent qualification requirements Flexible terms
Higher interest rates Shorter repayment terms Higher fees
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