Multi-Family Homes & Hard Money Loans: A Guide

It can be challenging to know how to finance multi-family real estate investments. Multi-family homes (MFH) can be more expensive, time-consuming, and laborious to fund than your average single-family home. But it doesn’t have to be this way. If you take advantage of hard money loans, you can finance your multi-family home quickly and efficiently.

Table of Contents

• What is a Hard Money Loan?
• What is a Hard Money Lender?
• What is a Multi-Family Home?
• Pros of Investing in Multifamily Houses
• Cons of Multi-Unit Real Estate Investment
• How Do You Get Hard Money Loans on Multi-Dwelling Houses?
• The Multi-Family Property Hard Money Loan Application Process

What is a Hard Money Loan?

The definition of a hard money loan is a short-term, asset-based, private real estate loan. Hard money loans have several advantages over “soft” money, or traditional loans. They can be funded within days, while many traditional loans take months to receive. Maryland hard money loan requirements are also more flexible than traditional loans. These lenders offer more flexible qualification terms and allow many borrowers to get the payment process out of the way faster because the loan terms are shorter. Borrowers have the option to repay the loan in full, or apply for refinancing through a traditional lender.

What is a Hard Money Lender?

Hard money lenders are private groups or individuals that loan money to investors. They serve as a primary financial resource throughout the multi-family real estate investment process. In that vein, they sponsor multi-family properties to ensure that investment projects can come to fruition. Private money lenders’ contributions to real estate investments can make seemingly impossible multifamily home projects possible.

What is a Multi-Family Home?

A multi-family residential building has multiple units and can hold multiple sets of tenants. Single people, roommates, and of course, families, are among the people who utilize these properties. This differs from a single-family home, which is intended for only one tenant or group of tenants. Apartment buildings, townhomes, and duplexes all fall under the multi-family house umbrella.

Pros of Investing in Multifamily Houses

Multifamily homes are prime properties to use on hard money loans for many reasons:

Reasons to Use Hard Money Loans on Multifamily Homes

1. Multiple Rentals at Once: Multifamily real estate allows investors to capitalize on multiple rentals simultaneously, all from the convenience of one building. This income can help investors pay off their loans more efficiently.
2. Builds Your Brand: Investing in multifamily real estate is a great launchpad foray into commercial real estate. It allows you to build your brand as an established, experienced investor.
3. Bigger Pool of Tenants: Multi-family real estate investments allow you to gain access to a bigger pool of prospective tenants than you would in a more space-limited, single-family home.

Cons of Multi-Unit Real Estate Investment:

Then again, you may not be prepared to invest in multifamily homes if you’re not ready to do a few critical things.

Signs You’re Not Ready to Invest in Multifamily Homes

1. It’s a ton of work: One person alone may find it exceptionally difficult to manage a bevy of tenants. This will result in low tenant satisfaction and retention. Therefore, it would be wise to invest in a property management company to ensure that you maintain your revenue and reputation.
2. Financial strains: You will pay larger down payments than you would in a single-family home. This higher rate is proportionate to the higher number of units you will have under your portfolio. Not every investor is prepared for these upfront costs. In addition, the ongoing maintenance cost of multiple units can be significantly more than a single-family property.

How to Get a Hard Money Loan on Multi-Family Houses?

The hard money loan accruement process is different with different lenders. However, here at Maryland Hard Money Lenders, we go through a rigorously tested lending process to make sure your project goes smoothly and is a good fit for our services.

The Multi-family Property Hard Money Loan Application Process

1. The initial application: Our easy loan application process invites you to answer a few simple questions, like your requested loan amount and the purpose of that loan. Once you finish this, we’ll give you a call to discuss our potential deal further, screen any remaining criteria, and hopefully send you a commitment letter of approval.
2. Routine document check: We will ask you to share with us:
   • A copy of your Driver’s License
   • Your cross-collateral property’s addresses, if applicable
   • 2 years of tax returns
   • A copy of your Sales Contract and any deposit checks
   • A bank statement that shows your current balance
   • A personal financial statement
   • A list of repairs and draw schedules that includes your material costs, labor costs, and contracts or contractor estimates.
   • Copy of all property appraisal and inspection reports.
   • All corporate documentation (for entity borrowers)
3. Property Inspection and Valuation: A property inspector will reach out to you to set up an inspection appointment. We also may ask for your property to be valued and titled.

4. Setup of Insurance and Closing Process: Depending on your loan type, we will require different types of insurance. As long as your property appraisal, title, or inspection is approved, and you have provided General Liability Property Insurance proof equal to your loan, a title company will grant you loan access. If you are rehabilitating your multi-family house, you may be asked to get an Obtainer’s Risk Policy. Any contractors must give out proof of General Liability Insurance and Workmen’s Comp Insurance.

5. Construction Draws: For construction loans or rehabilitation-related loans, we will want you to have a construction escrow. Then, you will arrange property inspections after each step of construction. After your property is approved and completed, your draw will be released.

6. Refinance or Sell Your Property!: In this stage, you can sell or refinance your property within the loan term to pay off your loan. When you do this, you can bask in the glow of success– your hard money-loan process is all done, and you have a refreshed and renewed multi-family home to show for it!

Get a Multi-family Hard Money Loan Today

Multifamily homes can enable burgeoning investors to develop their portfolio and financial assets. When investors use hard money loans, they take charge of their investing journey. They streamline their projects’ timelines to be more efficient and effective. Even better, they accelerate the time when you can see actionable results.

If you live in Maryland and need capital for your next investment venture, we’re here to help. Our team of professional hard money lenders is on standby to guide you throughout your hard money loan journey. We have years of experience managing countless hard money loan projects and are ready to share our expertise with you. Give us a call today and be one step closer to closing the deal on your multifamily home!