Understanding Multi-Rental Property Purchasing and Ownership

multirental property

Buying a multi-rental property is a great way to earn passive income and diversify your portfolio. This is a form of housing in which many distinct housing units for residents are contained in one or more buildings in one complex. It includes investing in apartment properties and condominiums. 

There are many benefits to multi-rental ownership. For instance, when you buy an apartment complex, you also build equity for future property purchases. It also gives you a buffer when some properties lose income or need repairs. Any short-term decrease in cash flow is also distributed over all of your assets, which helps keep your portfolio value high.

Here are vital things you need to know about buying multi-rental properties and maintaining your real estate portfolio.

Set up an LLC (Limited Liability Company).

Since you need to manage your assets and evaluate your profit and loss for each property, you need to establish a Limited Liability Company (LLC). You can protect your personal assets from litigation in the event of a lawsuit, as well as your private residence and assets.

It also separates your personal and business finances, making tax management easier. In some instances, forming an LLC might help you minimize your tax obligations.

The cost to form an LLC varies from state to state and ranges from around $100 to $500. Before transferring ownership of your home to an LLC, consult with your mortgage broker to determine the implications for your loan. 

You may also be required to pay a transfer tax depending on where the property is based. 

Options for Financing the Purchase of Your Fifth to Tenth Rental Property

Your financing choices for a second, third, or fourth house are the same for your first. Each new rental property must meet debt-to-income, down payment, and credit score requirements.

The conditions change significantly to finance your fifth to tenth home. A mortgage can be obtained through Fannie Mae and Freddie Mac. They were chartered by 1938 and 1970 respectively and play an essential role in the nation’s housing finance system. 

Fannie Mae helps ensure a reliable and affordable supply of mortgage funds throughout the country, while Freddie Mac helps ensure a reliable and affordable supply of mortgage funds.

Fannie Mae Guidelines

In 2009, Fannie Mae expanded the maximum financed property threshold from four to ten. To fund a home via Fannie Mae’s 5–10 Properties program, you need to have a credit score of at least 720. 

You also need a 25 percent down payment for a single-unit property and 30 percent for two to four properties. You will also need equity to refinance, six months of cash reserves for the total mortgage payment, and no record of bankruptcies or foreclosures in the past seven years.

Freddie Mac Guidelines

Freddie Mac acquires loans from smaller banks or thrift banks that specialize in providing banking services to communities, unlike Fannie Mae, which buys mortgages from big retail and commercial banks.

Freddie Mac has a simpler qualification method in its lending program, limited to six residences. Financing your seventh to tenth properties requires a Fannie Mae loan. 

It requires a minimum credit score of 720 and a down payment of 25 percent on your second to fourth home and a two-month reserve for the full mortgage payment. Unless you live in a 2–4 unit home, you can omit the mortgage payment on your primary house and the mortgage payments on any single-unit investment properties you own.

Final Thoughts

Building a real estate portfolio and buying multi-rental property doesn’t have to be complicated. You can put a strategy that involves projecting, planning, and putting together a real estate investment team to help streamline your efforts.

If you are thinking about how you can buy apartments and make your money work for you, contact us today at Buying Apartment Buildings. We can help you put your money to work for you through lucrative real estate investments. Schedule a call to learn more.