Multifamily properties imply residential buildings with several dwelling units. They are a convenient and budget-friendly housing option for people wanting to rent a house. Kanat Sultanbekov points out that those multifamily projects can be an attractive investment opportunity for real estate investors. These projects can provide stable, long-term cash flows.
Kanat Sultanbekov discusses ways to finance multifamily projects
Many investors choose to finance multifamily projects to build scale in their real estate portfolio. Investing in large multifamily properties would allow investors to benefit from economies of scale, in terms of leading, maintenance and property management. This can eventually lead to greater returns on investment and cash flows. Larger properties are often more attractive to potential buyers, and hence can lead to higher resale values.
Investing in multifamily housing projects would also help investors to diversify their real estate portfolio across multiple units and tenants, ultimately reducing their exposure to the risks of single-unit investment properties. Typically, multifamily properties have higher tenant retention rates and lower vacancy rates, thereby providing investors with more stable cash flows over the long term.
Mortgage loan is among the most popular financing options for multifamily projects. Financial institutions generally provide mortgage loans secured by the financed property. Such loans can be used for buying land, constructing new buildings, purchasing properties or even renovating existing structures. Investors may even obtain mortgage loans via government-backed programs like the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA) that offer mortgage insurance and other benefits to make property financing more accessible and affordable.
Kanat Sultanbekov mentions that tax credits are another financing option for multifamily housing projects. Tax credits basically lower the tax liability of the investors, thereby offsetting the cost of constructing or rehabilitating affordable housing. Low-Income Housing Tax Credit (LIHTC) program is a popular tax credit programs for multifamily housing projects in the United States. This program offers tax credits to buyers agreeing to rent a certain percentage of their units to people belonging to low-income households at below-market rates.
Apart from tax credits and montage loans, equity financing, bridge loans and construction loans are some of the other financing options that multifamily housing developers may explore. Construction loans are a form of short term loans that is used for financing the construction of a building. On the other hand, bridge loans are used to bridge the gap between the purchase of a property and the availability of long-term financing. Equity financing essentially involves the use of equity investments or partnerships with private investors or other organizations for the purpose of funding a project. Such an approach can be especially attractive for investors wanting to take part in the ownership and management of a property while sharing in the risks and rewards of the investment.
When it comes to non-traditional ways of financing a multifamily property, the trend of using private lenders or seller financing has gone up. These financing options are ideal for investors who do not have access to traditional financing options or want to maximize their returns by using alternative financing methods.
