The advantages and disadvantages of multifamily financing vary depending on the type of loan. Generally, multifamily loans offer better interest rates, longer terms, flexible terms, and higher leverage than other types of commercial real estate loans. However, some multifamily loans may come with prepayment penalties and required reserves.
Advantages of multifamily financing include:
Better interest rates due to lower risk in the multifamily property sector
Longer terms, with some financing types offering fully amortizing, long-term options
Flexible terms, with borrowers able to shop around for the terms they’re looking for
Higher leverage, with multifamily financing typically allowing for higher LTV ratios than other commercial real estate assets
Disadvantages of multifamily financing include:
Prepayment penalties, which can be significant
Required reserves, which can limit an investor’s flexibility