Many real estate investors buy multifamily properties to diversify their portfolios and generate passive incomes. However, many new investors often stay away from these properties because of a lack of capital. Investors who are low on funds often think the price tag is too hefty, or they need a significant down payment to secure financing. The truth is, there are several ways to raise capital for multifamily property investing without making a large down payment.
Private Equity
Also known as private money, you can raise capital from private investors such as hard money lenders or equity investors. Hard money lenders give you financing based on the after-repair value of a property and not your down payment or credit score.
Many reputable companies exist that offer hard money loans. If you have found a multifamily property that will give you a steady source of monthly income, and the after-repair value is much higher than the list price, you should consider a hard money lender to raise the capital you need.
Equity Investors
You can raise capital by seeking out equity investors. For a share of the equity in a multifamily property, an equity investor will give you the money you need for a down payment or other expenses (think “Shark Tank”). Private investors love to buy equity in companies. If you have found a property that meets all the return-on-investment criteria commonly used in real estate investing, equity investors will more than likely want to look at your business plan.
Crowdfunding
Instead of taking out a loan to buy real estate, you can use crowdfunding platforms to raise the capital you need. Today, there are an estimated 100+ websites dedicated to real estate crowdfunding. Instead of financing from one lender, crowdfunding lets you pitch to a pool of real estate investors who are ready to invest. Instead of borrowing a large sum from one investor, you receive funds from multiple investors. In return, those investors receive a portion of any profits from your multifamily property.
Keep in mind that trying to buy a multifamily property with little to no capital is not easy. It is not impossible, but it will take time to raise the capital you need if you have very little of your own money. Explore all your options and market yourself and your plan whenever possible.
