Investing in multi-family real estate can be a good idea. However, even if you are interested in it, you may think it is hard for you because you think that investing in such a thing requires a good amount of money. So, does investing in multi-family real estate require a lot of money? Is it possible to do it with no money down?
Can You Invest in Multi-Family Real Estate with No Money Down?
For anyone who is wondering if it is possible to invest in multi-family real estate with no money down, the short answer to the question is yes. Everyone has a chance to invest in multi-family real estate with no money down. Are you curious how it is even possible? Keep reading!
Methods to Invest in Multi-Family Real Estate with No Money Down
There are several ways to invest in multi-family real estate with no money down. Some of the methods include:
1. Private Money
Apart from acquiring single-family homes, private money lenders can also be useful when you want to invest in multi-family real estate. It is the best way for you if you do not have the funds for a down payment.
If you are wondering whether you have to connect the private lenders to an investment firm, in fact, you do not have to. Just like the single-family properties, there is no need for you to connect them to an investment firm. It is really easy to find the best private money lenders. Some of them are close to you, including your family members, your friends, your co-workers, and so on.
The question is, do these people want to lend their money to you? Investing in real estate is promising. There is a high chance of them getting a better return. While not everyone may be interested, there may be some who think ahead and are interested in it.
2. Equity Shares
Working with private money lenders is a bit different compared to working with an equity share investor. While you promise to give a regular return to the private money lenders, you give the equity share investor a portion of the equity of a property. It is usually done in exchange for the money needed for a down payment in purchasing multi-family real estate.
For instance, an equity share investor invests $100,000. In return, you give them a 40% share of the equity of the property. In total, they will receive 40% of the monthly cash flow from the property and 40% of the proceeds from the eventual sale of the property. These things give a chance for the investors to receive a short-term and long-term cash flow.
3. Material Shares
It is worth noting that material shares are not always possible for multi-family real estate investment. However, there are times when there are valuable natural or manufactured resources in the real estate that can be sold that are useful to help generate a down payment. For those who are not familiar with material, the examples include dirt, plants, gravel, timber, and fertilizer. Basically, they include things that may be valuable to another party.
4. Hard Money
Hard money lenders or HMLs refer to private individuals that lend a thing called hard money to a borrower. Aside from private individuals, they can also be small organizations. These kinds of lenders usually lend money based on the value of the property and not based on the credit score of the borrower.
Keep in mind that a traditional mortgage loan is not considered hard money even though the interest rate and original fees of hard money loans are higher. The reason is due to its onerous terms. Basically, hard money is about math. If the loan-to-value ratio or LTV of a property is 65% or lower, there is a good chance of you striking a deal, especially if you have a multi-family property that has earmarks of a steady source of cash flow. In case you have not found one, keep looking for one.
5. Repair Allowance
When inspecting a multi-family real estate, you will make a list of the things that have to be fixed before the process of the purchase. You will get the money from the seller at closing. Now, there are two options to choose from. The first one is to do the repairs yourself. It can be a good option if you have the expertise and time. If not then forget it. In this case, you can choose another one, which is believed to be a better option. It is to work with a team of contractors and or home repair professionals who have worked with you before. As you have worked with them and are already familiar with them, you can get the labor and material costs reduced. In the end, you can use that money on your down payment.
6. House Hacking
House hacking is defined as renting out part of a property that you currently live in. The things that you can rent out include a spare bedroom, loft, shared space, and so on. There are a lot of platforms that you can use. One of the most popular is called Airbnb. Make sure to price everything according to similar listings in your area.
House hacking is a good strategy for both homeowners and renters as long as lease agreements and local ordinances allow. If you are interested in this, study the laws on short-term rentals in your place and learn about the permits to get started. In some areas, licensing is required when listing property. After finding out about it, now think what to do to attract guests to your listing. One of the things that you can do is to make the place clean and comfortable. If a lot of people rent your place, you will get enough money that can be used to make a down payment for a multi-family real estate.
7. Real Estate Crowdfunding
Crowdfunding is the term to call a way to collect money by asking a number of investors for small amounts of capital instead of one big investment. It was popularized by some websites such as GoFundMe and Kickstarter. With it, anyone can crowdfund any project easily.
Crowdfunding is better than getting financing from only a lender. One of the reasons is because there is no need for you to get any capital to start it. All that you need is a reliable network and a strong pitch. The ones who put the money on crowdfunding want for your project to succeed. That’s why it is important for you to convince them how it will work.
8. Seller Financing
Seller financing refers to the process of making payments directly to the seller to buy the property. The term is popular in both single-family real estate and multi-family ones. The way it works is similar to traditional loans. Basically, the seller acts as the bank or as lease-to-own deals.
There are a lot of benefits of seller financing, including you are allowed to cut out the middleman in the transaction and get a chance to talk about the loan terms face to face with the owner of the property. However, there are also some disadvantages, including that these deals can be somewhat rare and it is possible for the interest rate to be higher than other financing methods. Even though seller financing has some drawbacks, it is still a good option when financing real estate, especially when the owners of the property want to sell it quickly.
9. Partnerships
Partnerships are not new in real estate. Usually, investors team up to split the components of a deal. They usually take different roles. However, they both get the fruits in the end.
If you are interested in partnerships, try to look for investors that bring a different background to the table. If you have decided to work with your partner, make sure to have a legal agreement to outline the division of labor, capital, profits and earnings, a general business structure, and so on.
Bottom Line
It is possible to invest in multi-family real estate with no money down. All that you need to have is creativity, resourcefulness, and the ability to build strong relationships with potential partners and investors. Before getting started, you are recommended to conduct some research, discuss with professionals, and develop a solid business plan to make everything go smoothly. Remember that investing in real estate is risky so please be careful.
