The only downside to private funds is that in most cases the interest rates tend to be higher than a conventional bank loan. As you can imagine this type of funding enables you to purchase multifamily investment properties really quick with less hustle.
Six Steps to Turn-key multifamily investing Success in Hagerstown
Hagerstown is composed of a great number of multifamily properties which makes Hagerstown a great market for investors looking to buy & Hold multifamily investment properties. If you are new to real estate investing You might be asking yourself, what in the world is a turnkey investment property? A turnkey multifamily investment property is a property that is fully rented and currently producing rental income. This means you will be receiving rental income right after closing day! That sounds exciting! doesn’t it? But before you start thinking about all these cash in your pocket, you have to learn what it takes to successfully invest in multifamily investment properties. This article is a step by step guide in how to successfully invest in multifamily investment properties in Hagerstown. You will soon learn what you need to know to start making your money work for you by creating wealth & Receiving Passive Income through real estate. Enjoy!
Step 1: Get Your Mind On Board! Finding your “WHY”
Before I share with you the information that will enable you to invest in multifamily properties successfully, I need you to focus & Find out the number one reason why you want to invest in real estate, specifically multifamily apartment buildings. Is it because you want to create a new stream of income? Maybe, progress through your path to financial freedom? In any case, the truth is that until you find the emotional connection to why you want to obtain financial freedom, you will not be committed to achieving it! Let me explain:
First, we need to understand three facts about the human brain. It is a fact that our brains have conscious & subconscious mechanisms and these mechanisms execute/conduct our behavior in everyday life. It is also a fact that our unconscious abilities are more powerful than our conscious because our unconscious mind enables you our breath without thinking, manage how many times our heart beats, memory retrieval, emotional responses, etc. One way to direct our unconscious mind is through your emotional states.
If you can align your conscious & unconscious abilities to achieve your goals, it will be literally impossible Not to achieve them, as long as you are being exposed to the opportunities by execution! Let me explain;
By consciously *COMMITTING* to becoming financially free. To commit to learning the real estate investing game. To commit to believing that it’s not only possible to become financially free! But that it’s possible for YOU! Finally, to commit in executing the actions to expose you to the opportunities. What about your Unconscious? You might ask. When it comes to your unconscious as mentioned previously, one way to align your unconscious is through your emotional state. If we are trying to become financially free, it makes sense to think, imagine & *FEEL* all the benefits that financial freedom will bring to you & your love ones! Close your eyes and imagine the world when money is no longer a negative variable in your life, where money is abundant because you have built multiple streams of income! A world where you & Your family are able to actually do what you are passionate about! Feel the happiness, excitement & the freedom expanding & Running throughout your body! That feeling will execute the alignment of your unconscious mind. When you repeat this exercise multiple times, it will become second nature. Your level of positivity & absolute certainty will grow! Your level of action will increase because you will create powerful habits! You will learn & progress successfully in the real estate investing game!
In this step, you learned how important is to find your “WHY” & How you can align your conscious & unconscious abilities to become unstoppable! Next, we dive into the KNOW-HOW. This information will arm you with confidence to take action and let yourself develop into a successful multifamily real estate investor!
Step 2: Financing Your Deal
There are Multiple routes to finance your multifamily investment property: FHA loans, Commercial Loans & Seller Finance & Private Funding. To find out which route is suitable for you, it will depend on a couple variables such as the occupancy status, number of units your deal has & the opportunities you are surrounded by, let me explain in more detail:
FHA loans are loans that are insured by the federal government. This type of loan is advantageous for investors that are looking at multifamily investment property that are less than 4 units and plan to live in the property as owner occupants. Two of the greatest benefits of FHA loans are the fact that you only need 3.5 % as a down payment & the interest rates tend to be lower than conventional loans. What are the requirements? You may ask. For FHA loans, loan officers will look at your personal income, credit score & debt ratio. FHA loans are originated mainly based on the individual’s ability to pay the yearly debt service (mortgage). For instance, Let’s say you buy a triplex! You live in one unit, rent the other two. One tenant pays for utilities and the other tenant pays the mortgage! You live for free & You are gaining equity over time!
Conventional Loans require a higher down payment. The average downpayment for a Commercial loan on a multifamily investment property (4+ units) is 20% to 30%! What are the requirements? One of the biggest variables the bank will focus is the property’s ability to fulfill the yearly debt service. Banks use the Debt-Service-Coverage-Ratio formula (DSCR), Most commercial lenders require a minimum DSCR of 1.25. DSCR is calculated by dividing the annual net operating income by the annual debt service. For instance, if the annual net operating income is $21,600 and the annual debt service is $8400. The DSCR on this deal would be 2.5! The bank will have not problem financing this deal! as long as the note holder has a reasonable credit score and Debt ratio. Conventional Loans are great for large multifamily Investment Properties!
Seller finance occurs when the seller acts like the bank by holding a mortgage for the buyer. As you can imagine, there are a couple benefits with seller financing. It enables you to negotiate the terms such as the sales price,Downpayment, interest rates & Loan period. You have the potential to put a great deal together, especially when the seller is motivated to sell. The best case in seller financing from the buyer’s point of view is purchasing the property with as little money down as possible. For instance, Recently I was able to acquire a duplex using seller finance. I negotiated the following terms:
DownPayment: 15% (15,750)
Interest rate: 4%
Amortization: 20 years
Loan Period(balloon payment): 2 years
What does this mean? I will be putting $15,750 plus closing cost at settlement. After closing, I will be paying a monthly mortgage of $540.84 or a yearly debt service of $6490.08! for 2 years. After the two years, I will have to pay the remainder of the loan by refinancing with a bank. As you can see, One of the biggest benefits with seller finance is the ability to find a deal that works for you and the seller. This is the reason why Seller finance deals are in demand!
Hard Money Lenders
Hard Money lenders are Third-party companies that specialize in lending short terms funds, usually 3 to 6 months. These lenders are familiar with the different investment strategies and all the numbers involved in the real estate investing game. They mostly work with investors that buy fix and sell also known as flipping. Hard money lenders actually work on your behalf as they make sure your deal will work out. For instance, If you were to purchase a multifamily investment property that needed a lot of work, You have to break down the numbers. You need to find out what your total repair cost, After repair Value and what your maximum offer amount should be to make a profit. Hard money lenders verify and make sure that the rehab cost and the after repair value you acquired are accurate, otherwise they will not lend you the money. Everything sounds good to be true ? Well, You guessed right. Although hard money lenders can be a great tool when needing money fast, The downside of using hard money lenders are the higher interest rates and the fact that sometimes you have to pay junk fees for using their service.
A Private lender could be an individual or a group of individuals who lend you capital expecting a specific return. These Investors are looking for a return that can not get in the bank through CDs or The stock market. They can be family members, friends or friends of friends.The advantage of using private funds is the ability to gather funds really quick and the fact that you avoid the many junk fees that you would pay if you used the bank or Hard Money Lenders. Using Private lenders is the ideal way to financing all your deals because you have leverage to negotiate better terms without paying all the junk fees.
Step 3: Finding Your deal
It is difficult to generalize what the perfect multi-family investment property is because the “Perfect”deal is different for all of us. Your ability to finance, your positioning & your awareness of the market play a big role defining the perfect investment property for you. You might just be getting started with real estate investing or perhaps you are a well-seasoned investor. The perfect deal will vary depending on what is most suitable for you with the current resources you have at hand.
Now that we know that the perfect deal will vary case by case, You might be asking yourself, How do I find out the opportunities in the marketplace? what are the steps to position yourself to be surrounded by the opportunities in the market? Next, we explore the best ways to increase your exposure in finding the many opportunities the market has to offer in Hagerstown.
Relationships: Your Network defines your Networth
It is a well know saying that your network defines your net worth, but is it actually true in multifamily real estate investing? Absolutely! In order for you to increase your level of exposure to the all the great deals in your market, you must create and nurture long-term relationships with peers, professionals & Institutions in the real estate realm. Next, I will guide you through all the steps to network with the key players in the real estate investing realm to increase your exposure to find all the great turnkey multifamily investment properties.
Real estate professionals : Nurturing Long-term Relationship
As you can imagine, Your relationship with a highly productive and competent broker/agent is imperative to find and grab those perfect deals! Which begs to question, What is the best way to find the best agents in your market? In my experience the best real estate agents in any market are the agents that share the following attributes:
- Listings, Listings & More Listings
- Uses Active & Passive Marketing strategies
- They are Fast executioners
A competent & capable real estate agent must have a lot of listings of multifamily Properties because this proves that they are constantly prospecting for sellers in a daily manner. I personally have encounter motivated sellers that do not wish to list their investment properties for many reasons. This is a great opportunity to for investors because there is potential to negotiate a phenomenal deal! If you create a relationship with a highly competent, capable & confident agent, Great deals are bound to come your way. Agents that are competent are always listing, marketing and are highly responsive.
Fellow Investors : Your ability to sell yourself & Create Value
Environment: Your Focus defines Your Reality
Neighborhoods drive bys
Real estate search Engines