Using Hard Money Real Estate Loans to Invest in Multifamily Properties
As we approach 2023, many investors are thinking about their next moves. There are several types of investments that can add to your portfolio. However, many investors are looking at multifamily real estate. After all, it’s a quick way to earn high returns and diversify your investment portfolio. Beyond that, there are several ways you can finance your multifamily investment. So, let’s discuss the market outlook for multifamily real estate and how you can use hard money loans to fund your investment.
Contents of This Article:
- What is Multifamily Real Estate?
- Should You Invest in Multifamily Real Estate?
- Why is 2023 a Good Year to Invest?
- How Can You Use Hard Money Real Estate Loans?
- Why Use Hard Money Real Estate Loans?
- Finding the Right Hard Money Lender for You
What is Multifamily Real Estate?
Multifamily real estate is a single building with multiple units within. Generally, it can be divided to house several tenants in separate units, all within the same building. For instance, an apartment building, townhomes, and duplexes are all examples of multifamily real estate.
When you think of multifamily real estate, you may think of multiple people living together. However, single people or roommates can live in these properties, too. That said, if you own multifamily properties, you’ll likely have a diverse tenant pool to rent to.
Many investors like multifamily properties for their high returns and high rental demand. However, they require a lot more time, effort, and capital than other real estate investments. For instance, you’ll likely need a property management team to help maintain your property and communicate with tenants.
Now, if you’re wondering whether or not you should invest in multifamily real estate, it’s essential to evaluate the pros and cons. Additionally, you’ll want to learn as much as possible about the current market and how to finance your investment. So keep reading as we go over all you need to know about multifamily real estate investing.
Should You Invest in Multifamily Real Estate?
If you’re thinking about investing in multifamily real estate, it’s essential to know how it can benefit you. But conversely, you want to understand the disadvantages to determine whether it’s a good investment strategy for you. So, let’s discuss the pros and cons of multifamily real estate investing.
Benefits of Multifamily Real Estate
- Higher Returns- Investors generally earn quick and significant returns with multifamily real estate. After all, you’re collecting rent from several tenants each month, allowing you to pay off the loan and other expenses with income left over.
- Scalability- If you want to grow in the rental industry and diversify your portfolio, investing in multifamily real estate is a great way to do so. Then, once you’re comfortable, you can branch out to other commercial property investments.
- Wide Tenant Pool- Multifamily buildings offer several units, which means you can house several tenants. As such, you’ll draw in a wider pool of tenants with a multifamily property.
Disadvantages of Multifamily Real Estate
- Harder to Manage- It’s a lot of work to manage one large building with several units and tenants. So, if you have multifamily properties, you’ll want to invest in a property management company.
- More Competition- Multifamily rental properties are highly competitive amongst investors. That said, if you plan on buying a property, make solid offers and prepare to go up against other investors.
- Higher Financing Costs- If you consider the size of the building and the potential ROI, you should expect to pay a large down payment. Additionally, your loan payments will be larger than they would be for a single-family investment property.
Now that we’ve gone over some of the pros and cons of multifamily real estate, you may be wondering–is 2023 a good year to make this investment? First, let’s go over the current market and the outlook for the next year.
Why Is 2023 a Good Year to Invest?
At the start of 2022, there was a strong demand for multifamily properties. As the year continues, the demand remains strong at a more moderate pace. It’s important to recognize that the demand for multifamily real estate may depend on the location, neighborhood, and building type.
As we take a look into 2023, experts suspect the demand will increase quickly. After all, it’s becoming harder for individuals to get single-family homes due to high interest rates and inflated prices. So, many people opt for apartments or rental homes until the market settles.
Regardless of the short-term market, multifamily real estate investments are significant for several reasons. For instance, they’re easy to finance and an excellent way to scale up and diversify your portfolio. Additionally, the demand is generally steady for rental housing, especially in multifamily buildings.
Again, you have to look at each individual market, but a general outlook for 2023 shows that demand will remain resilient. So next, let’s discuss how you can finance your multifamily real estate investment.
How Can You Use Hard Money Real Estate Loans?
If you’re wondering how to finance your next investment, whether a multifamily property or a single-family home, you may want to consider a hard money loan. Hard money real estate loans are unconventional loans that differ from traditional bank loans. So, instead of going through a bank to get a loan, hard money loans come from private lenders.
Additionally, private lenders use the real estate value as collateral instead of looking at your creditworthiness to determine the loan. That said, most private lenders charge higher interest rates, generally around 7 to 12 percent, compared to some bank loans that charge about 5 percent. However, the convenience makes the expense worth it. Most hard money loans are approved and funded more quickly than bank loans.
Why Use Hard Money Real Estate Loans?
There are several reasons why people look for hard money real estate loans. For instance, if you want to finance your multifamily investment quickly, you may consider a hard money loan. Additionally, some people will turn to hard money loans if they don’t qualify for a bank loan. Depending on your lender, your credit doesn’t matter as much as the property at stake.
The first step to getting a hard money real estate loan is finding a reputable lender. Then, you’ll want to explain the property you want to finance and provide the proper documentation. Generally, you’ll need the loan application plus specific information about the property. Sometimes, you’ll need tax records, proof of funds, or bank statements.
Ultimately, your hard money loan details depend on your lender and their requirements. Before choosing a lender or company, do your research and determine what documentation you need for a loan.
Finding the Right Hard Money Lender for You
Hard money loans aren’t suitable for everyone. After all, some people aren’t looking to pay a higher interest rate for quicker financing. However, if you’re looking for an efficient way to find hard money real estate loans, it’s crucial to find a reliable lender.
If you’re looking for a lender to help you finance a property, reach out to one of our local Maryland hard money lenders. Our expert team has the experience and expertise to help bring your investment goals to life. So, if you want to learn more about our lending process, contact your local Maryland Hard Money Lenders today!