Which multifamily loan is best suited for my situation?
I am brand new to real estate investment. I read a great article on this site, but I have some follow up questions. I would like to build duplexes on some land that my mother owns. If I built 3 separate duplexes on a single piece of land, would this be considered a 6 unit property or three separate 2 unit properties? I understand from the article that anything over 4 units requires different types of loans. That leads directly to my next question, which is what type of loan would apply in this situation? It will not be owner-occupied, so I assume either a conventional loan or a portfolio loan? Lastly, the land is located in a rural area. Does what I am attempting to do qualify for any type of rural development loans?
Great question! The answer is really dependent on how the land is parcelled. If it is truly one piece of land and not three separate adjoining lots, then building three duplexes on the parcel would make this a 6-unit property. Whether such development is allowable would be at the discretion of local zoning law. In terms of financing, this would most likely fall in the realm of a conventional loan. A portfolio loan is typically used to finance separate sites (for example, it the three duplexes were on separate non-adjoining lots).
Rural Development’s Section 538 Multi-Family Housing loan guarantee program may be able to assist you. Because it’s a guarantee program, you would still apply through a local approved lender, and Rural Development would then guarantee the loan (which helps you to get a lower interest rate). There are some tenant-income limitations that accompany this source of funding though, so you will want to be familiar with those regulations before deciding to go that route. You can find more information on the Section 538 program on the USDA website. From that site, you can also verify that the property location is eligible for Rural Development Funding.
Hopefully, this helped answer your question.