How To Buy A Multifamily Property With No Money Down

Real estate investing is all about maximizing profit relative to your initial investment. Multifamily homes can be particularly attractive because they allow you to take in significant passive income, potentially from tens or hundreds of units. However, the larger upfront investment compared to single-family homes can be challenging.

Limited capital doesn’t have to keep you from fully realizing the potential of a multifamily rental property. You may have to get creative, but let’s discuss how to buy a multifamily property with no money down.

10 Ways To Buy A Multifamily Property With No Money Down

To the average person, a multifamily home may be any home that has more than one living unit. However, in lending and legal circles, any home with up to four units is a single-family home. Multifamily homes include any project that has five units or more.

With a VA loan, you can purchase up to four units with no down payment as long as you live in one of them. FHA has the same residency requirement with a 3.5% down payment.payment.

Multifamily homes have many units, so these loans are often done by lenders who specialize in commercial loans. They typically require higher down payments of at least 15% – 25%, and the down payment may be higher depending on the way your financing is structured.

However, there are ways to buy a multifamily home with little or no money for investment. The methods discussed in this section could be used alone or in combination.

1. Cash-Out Refinance

In a cash-out refinance, you take a higher balance on the primary mortgage of a house in order to convert the difference between your existing balance and the new loan amount into cash. This money could then be reinvested into the down payment on a multifamily property. Here are the benefits and drawbacks:

Pros

• You have one mortgage payment on the home being refinanced.
• You’ll receive the lowest possible mortgage rate because it’s based on the first lien on the home.

Cons

• With the exception of VA loans, you typically have to maintain at least 20% equity in the home after the refinance, which limits the loan amount that would be usable for a down payment.
• Depending on the amount you’re looking to borrow and the current interest rate environment compared to when you last took out a mortgage, you could be better off getting a home equity loan. Have your lender help you with a blended rate calculation.

2. Home Equity Loan

A home equity loan offers an alternative method of accessing existing equity in your home. The idea here is that instead of refinancing your primary mortgage, you take out a second mortgage so that you don’t have to touch the interest rate on your primary loan.

Our friends at Rocket Mortgage^® offer both cash-out refinances and home equity loans.¹ Here are the pros and cons:

Pros

• You don’t have to change anything about your primary mortgage, which could be attractive if you have a low rate and the market has changed appreciably.
• Your rate may end up lower than it would be by doing a straight cash-out refinance if you do a blended rate calculation on the combined balances.
• You may be able to access more of your equity because lenders will often allow you to borrow up to 90% of your existing home value between your primary mortgage and the home equity loan.

Cons

• The actual rate of the home equity loan is going to be higher than one for a cash-out refinance because it’s a secondary lien to your primary mortgage.
• You would have two separate payments.
• You have to be very careful to do the math to make sure you’re getting the best rate by taking out a separate home equity loan.

3. Co-Borrowing

Having a co-borrower can help because they can share some of the costs, including the down payment. Here’s the breakdown:

Pros

• You could qualify for a bigger loan with the income and assets of multiple people.
• Everyone can chip in for the down payment and things become a bit easier.

Cons

• You’ll have to hash out how ownership works. Be sure to consult a local attorney.
• If one person eventually doesn’t hold up their end of the bargain on the loan, everyone else on the loan is still responsible for it.

4. Equity Shares

An agreement for equity shares involves someone putting up agreed-upon amounts for the down payment and closing costs – or even ongoing expenses – in exchange for equity in the property as agreed by the parties. Let’s take a closer look:

Pros

• Someone else comes up with the down payment, closing costs or even expenses associated with maintenance.
• These may be very flexible agreements. For example, you may have the option to buy out your equity investor after a certain number of years by paying the money back and the amount of equity appreciation they would receive based on their ownership interest.

Cons

• You’re giving up property interest, meaning less money on the sale.
• If you choose to buy out your investors in advance, you have to come up with that money.

5. Hard Money Lending

Hard money loans are a form of financing in which the funding is entirely based upon the value of the property secured by the loan rather than any evaluation of whether the borrower can make the payments. Here’s a list of the upsides and downsides:

Pros

• You can get the loan without having to credit qualify.

Cons

• Because there’s no credit evaluation, interest rates on this financing can be very high.
• You typically have a very short amount of time to pay these off.
• If you miss payments, the lender could move very quickly to take the property. There are more protections with more traditional financing.

6. Private Money Lending

Private money lending involves borrowing the money from private individuals rather than a financial institution. Here’s a look at what you need to know about this:

Pros

• It may be easier to qualify. The level of credit checking may vary here.
• Terms may be more negotiable.

Cons

• Make sure you get everything in writing. What happens if you miss a payment? What are the due dates?
• Know if they’ll have a lien on the property and whether there will be any credit reporting on your monthly payments. There may not be, which doesn’t help your credit score, even if you make the payments on time.

7. Seller Financing

When you opt for seller financing, you negotiate a loan and an interest rate with the seller. Let’s evaluate this option:

Pros

• It could be easier to qualify. Credit may or may not be checked.
• The terms of the loan can be negotiated.

Cons

• Everything we said about private money lending applies here. Write down rights and responsibilities under the contract. Also understand that your payment history may not be reported.
• You could do everything right and still lose the house. If you have a wraparound mortgage and the seller hasn’t been paying the bill, you could be looking for a new place to live. This could also come up if there are unpaid real estate taxes.

8. House Hacking

House hacking is the practice of finding different ways to make money off your existing home, most commonly by renting out your first home. Check out the breakdown:

Pros

• Renting out your home can be a good way to passively earn income.
• It doesn’t have to be the whole home. It could be a room. This makes such agreements flexible.

Cons

• You could be giving up part of your personal space.
• You have the responsibilities of a landlord.
• You’ll need to periodically find new tenants.
• Some cities have very strict regulations around short-term rental if they haven’t outlawed it altogether. Check with a local lawyer.

9. Partnership

A partnership works similarly to an equity sharing arrangement except that in a partnership, you may be able to shield creditors from going after some personal assets if things are set up correctly. Here’s a rundown:

Pros

• Several people go in together on the costs.
• Depending upon the setup, a partnership could allow someone to separate certain personal assets from the partnership investment if things go wrong (that is, having a limited liability partnership).

Cons

• You’re sharing equity, which means less money when you sell the property or even collect rent.
• Should you choose to buy out your partners, you’ll need to come up with the cash for that.

10. Assumable Mortgage

An assumable mortgage is one that allows you to take on the payment from the seller once you close on the home. Here’s what to consider:

Pros

• There’s no down payment associated with this whatsoever.

Cons

• Not all mortgages are assumable.
• Even if they are assumable, it usually has to be approved by the current lender and/or servicer.
• You may not want to do this if the interest rate you can get through other types of financing mentioned are lower than that for the mortgage you would be assuming.
• There are assumption fees.

How To Buy A Multifamily Property Or Apartment Complex With No Money Down In 12 Steps

When you buy a multifamily property or apartment complex, there are several steps you’ll have to go through:

1. Check your credit score: Because there’s a higher investment involved in purchasing any multifamily home, you’ll have to have a higher FICO^® Score than the typical credit score needed to buy a house. This is particularly true if you want to secure the best terms. Aim for the high 700s.
2. Establish a budget: A lender’s calculations of what you can afford and what you actually feel comfortable paying on a monthly basis could be two very different numbers. Given this, you’ll want to figure out how much house you can afford by looking at your savings and your monthly budget to come up with a down payment, closing costs and monthly payment that you might be comfortable with. You can then work out your price range using a mortgage calculator.
3. Find a real estate agent: When it comes to finding a real estate agent, you’ll want to have someone who’s aligned with your goals. To do this, you can ask questions like how often they work with people who have your budget, how they like to be communicated with and how they’ll communicate with you. Rocket Homes^SM can also connect you with one of our Partner Agents who understands your market and your objectives.
4. Choose a method: You’ll want to decide how you can fund your down payment at this point using one or a combination of the methods we talked about earlier. This will help your real estate agent and lenders understand that you have your plans in order.
5. Speak with a lender: It’s going to be important to speak with several different lenders. They may have different programs that can help you accomplish your goals and obtain financing.
6. Get approved: Before moving forward, it’s also important to get preapproved. This shows both sellers and the real estate agents they work with that you’re making a serious offer that you can back up. The preapproval process involves a credit check and sharing income and asset documentation with a lender so they can give you a top end for your budget.
7. Find a multifamily property: Your agent can help you find multifamily properties in your price range. You may also be able to search online listings. It’s just as important to know what you’re looking for. Some sites may only show multiunit single-family homes (four units or fewer).
8. The offer process: Once you find the home, you need to win the bidding process. A lot of this comes down to money, yes. But sellers also want certainty. You may need an appraisal for financing and you should have an inspection done so that you understand what kind of shape the property is in. However, your agent will be able to advise you on the type of market you’re in and whether you have the leverage to have these written in as contingencies.
9. Appraisal: An appraisal is important because it will give you an idea of whether you’re overpaying. Additionally, lenders will require it because your loan is being made based on the value of the property. If you have an appraisal contingency, it could give you negotiating leverage.
10. Inspection: Be sure to have an inspection done on the property. Even if you don’t have a contingency written in so you can walk away, you’ll want to know what needs fixing or what may need it in the future.
11. Final underwriting checks: While your appraisal and inspection are happening, your lender will be doing final underwriting checks. Be sure to promptly provide any requested documentation to avoid closing delays.
12. Close the deal: You show up with your check for the down payment and closing costs. Sign the paperwork and you own the building. Congratulations on your new passive income stream!

FAQs About Buying A Multifamily Property With No Money Down

Now that we’ve touched on the basics of finding down payment money for a multifamily property, let’s discuss some of the other big questions you might have.

Are there other low-down-payment financing options for purchasing a multifamily home?

If you’re buying a multiunit single-family home, most people can get into an FHA loan with 3.5% down. When it comes to traditional multifamily homes with five units or more, there’s not an equivalent. The closest would be an FHA multifamily loan. Even these require 15% down.

What are typical lender requirements for a multifamily home loan?

While every lender will have different requirements, for the best terms, you’ll want a credit score in the high 700s. You’ll also want to show a good amount of assets to cover the down payment and potentially reserves if you temporarily have issues finding tenants and need to make the payment. They may also want you to show experience with property management.

Is there down payment assistance for multifamily properties?

There’s not typically down payment assistance in the way that there might be for single-family properties. Many of these programs are targeted at first-time home buyers as well and not necessarily people who are doing an investment.

What are the disadvantages of owning a multifamily home?

You’ll have to handle maintenance for all of your tenants because you’ll have all the responsibilities of a landlord. When tenants leave, you’ll have to market to find new ones. The costs are also typically higher for a multifamily home than they would be for a single-family property.

Is owning an apartment complex profitable?

This depends on the apartment complex, and you’ll have to do some math and research. There are calculations you can do on the cap rate and other metrics that might help you get a return on investment.

Is it possible to buy multiple properties with no money down?

It’s a challenge to buy one property without any initial money of your own to bring to the transaction. But you can use the same strategies we’ve talked about here and look at ways to do things at scale, perhaps through partnerships or equity shares.

The Bottom Line

When looking at multifamily properties, it’s important to be clear on exactly what you want upfront. Homes with up to four units are single-family properties. Multifamily properties start at five units or more. You can expect to pay a minimum of 15% – 25% down before closing costs if you’re getting a regular multifamily loan.

The good news is there are various options you can look at, including everything from cash-out refinances and home equity loans to equity sharing and partnerships. When it comes time to buy the home, make sure you do all the due diligence you would with your personal home, including an inspection and appraisal.

If you’re looking for a multiunit single-family home, get approved with our friends at Rocket Mortgage. Otherwise, one of our Partner Agents can help you find a multifamily home.

¹Home Equity Loan product requires full documentation of income and assets, credit score and max LTV/CLTV/HCLTV. Requirements were updated 10/4/2023 and are tiered as follows: 680 minimum FICO with a max LTV/CLTV/HCLTV of 80%, 700 minimum FICO with a max LTV/CLTV/HCLTV of 85%, and 740 minimum FICO with a max LTV/CLTV/HCLTV of 90%. Your debt-to-income ratio (DTI) must be 45% or below. Valid for loan amounts between $45,000.00 and $350,000.00 (minimum loan amount for properties located in Iowa is $61,000). Product is a second standalone lien and may not be used for piggyback transactions. Product not available on Schwab products. Guidelines may vary for self-employed individuals. Some mortgages may be considered “higher priced” based on the APOR spread test. Higher priced loans are not allowed on properties located in New York. Additional restrictions apply. Not available in Texas. This is not a commitment to lend.