Financing the First Few Deals
How you finance a deal determines your returns as much as the property itself. A difference of 1% in rate or 5% in down payment can swing cash-on-cash returns by several points. Here's what's available for small multifamily investors.
Conventional (Fannie/Freddie)
Pros
- + Lowest rates available
- + Fixed-rate options
- + Long amortization reduces monthly payments
Cons
- - Strict qualification (DTI, credit score, reserves)
- - Limit of 10 financed properties per borrower
- - Full documentation required (tax returns, W-2s)
- - Slower closing (30-45 days)
Best for: Your first 1-4 investment properties when you have strong W-2 income and clean financials.
DSCR Loan
Pros
- + Qualifies on property income, not personal income
- + No limit on number of properties
- + No tax returns or employment verification
- + Close in LLC (asset protection)
Cons
- - Higher rates than conventional
- - Typically requires 1.20-1.25x DSCR
- - Higher down payment on some programs
- - Prepayment penalties are common
Best for: Scaling beyond 10 properties, self-employed investors, or when you want to keep properties in an LLC.
Commercial / Portfolio
Pros
- + Flexible terms (negotiable)
- + Relationship-based (local banks)
- + Can finance 5+ unit properties
- + Portfolio lenders may be more creative
Cons
- - Balloon payments create refinance risk
- - Shorter amortization increases monthly payments
- - Often adjustable rate
- - Requires strong banking relationship
Best for: Larger multifamily (5+ units), portfolio acquisitions, or when you have a strong relationship with a local bank.
Hard Money / Private
Pros
- + Fast closing (7-14 days)
- + Less documentation
- + Based on deal, not borrower
- + Good for BRRRR acquisitions
Cons
- - Very high rates
- - Short term (must refinance or sell)
- - Origination fees (2-4 points)
- - Not a long-term hold solution
Best for: BRRRR strategy: acquire and rehab with hard money, then refinance into a permanent loan once stabilized.
Seller Financing
Pros
- + Most flexible terms possible
- + No bank qualification
- + Faster closing
- + Can structure creative terms
Cons
- - Depends on finding willing seller
- - Balloon payment risk
- - May not have same consumer protections
- - Usually shorter term
Best for: Off-market deals where the seller owns the property free and clear and is motivated by cash flow rather than a lump sum.
Which loan type does Fairmeadow use?
For our first deals, we use conventional financing to get the best rates. As we scale past 10 properties, we'll transition to DSCR loans to qualify on property income rather than personal DTI. For BRRRR-strategy acquisitions, we may use hard money for the acquisition and rehab phase, then refinance into a permanent loan once the property is stabilized and re-appraised.
Run the numbers with our Mortgage Calculator →