FINANCING BY PROPERTY TYPE As you consider your financing options, you need to understand which method best aligns with your investment strategy and property type so you can make the best choice. Therefore, let’s help you connect the dots and pull that together.
For a 2-4 unit stabilized property Conventional financing is typically the best choice due to its lower interest rates and longer repayment terms (amortization period). Conventional financing is ideal for investors with good credit and stable income, who don't require a fast turnaround on financing.
For 2-4 unit fixer-uppers Hard money loans are the most common solution, especially for investors using the BRRR (Buy, Renovate, Rent, Refinance) strategy. These loans are ideal for investors who need quick access to capital and are willing to pay higher interest rates for convenience or for investors looking to keep mortgages from piling up on their personal credit.
For 5+ unit value-add deals The type of lender that makes the most sense will largely depend on the specific value- add activities you plan to undertake. If rehab is involved, a bridge loan may be necessary. These loans are short- term, higher-interest loans used to bridge the gap between acquiring the property and securing long- term financing.
For a performance- only value-add project You may be able to use conventional commercial financing as long as the property in its current condition and operations meet the lender’s lending criteria. Some lenders offer a “bridge-to- perm” loan where the terms of the loan are different during the rehab until the property is stabilized at which time they typically become more favorable.
For 5+ unit stabilized properties Conventional banking that offers commercial loans is usually the best fit. These loans provide lower interest rates and longer repayment terms, making them more cost-effective over time. In our experience, if you’re able to work with a bank local to the market where the property is located, you can oftentimes find some of the same flexibility that we more commonly see with hard money lenders. Another option is using a commercial mortgage broker, who can take your deal and shop it around to many lenders.
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