Fannie Mae Just Made Small Multi-Family Properties More Accessible for Homebuyers

By Josefin Gatsby on 11/09/2023.
Reviewed by Michelle Clardie .
Big news! Fannie Mae just announced a new option for homebuyers to put as little as 5% down when they purchase a multi-family residence. This is a dramatic shift from the 15-25% down payment previously required. 

Now, to be clear, this deal is reserved for the buyer-investors who purchase a duplex, triplex, or 4-plex to live in one of the units while renting out the other(s). BUT other real estate investors still benefit from this new low down payment offer. 

This article will explain why this is such a big deal and how you can benefit from it even if you’re not looking to personally occupy a multi-family property. 

The Big Benefit for Multi-Family Investors Who Occupy an On-Site Unit

The low 5% down payment is a potential game-changer, especially for first-time investors looking to build a real estate portfolio and learn how to manage rentals.

You may have seen this strategy laid out in our article on house hacking: instead of buying a single-family home, a homebuyer purchases a multi-family property of up to four units (this is the maximum unit count before a property technically stops being classified as residential and gets classified as commercial). The buyer resides in one unit and rents out the other(s) for passive income to help offset their mortgage and maintenance expenses. Over time, as rents increase, and the mortgage debt is paid down, the income from the rented units more than covers all property expenses, effectively allowing the owner to have $0 housing costs of their own, and potentially even putting cash in their pockets.   

Decreasing the down payment requirement from around 20% to just 5% makes this opportunity far more achievable for a wide range of investor-buyers. On a $800,000 duplex, for example, a 20% down payment would have required the buyer to lay out $160,000 in cash (in addition to the closing costs and any urgent repair expenses). With a 5% down payment, a buyer could put down just $40,000. 

Quick reminder: the monthly payment will be much higher because of the lower down payment. And the buyer might also need to pay for private mortgage insurance to help offset the additional risk to the lender. But by reducing the upfront expense, investor-buyers can get a foot in the door and cover much of the higher monthly mortgage costs with their new passive rental income. 

The Big Benefit for ALL Real Estate Investors

So, if you’re not looking to occupy your own small multi-family building, how does this affect you? 

It’s simple: by making this property type more accessible to a wider range of buyers, Fannie Mae is increasing the demand for these properties. Anyone investing in multi-family properties with 2-4 units stands to benefit from this increased demand. A wider pool of buyers means more buyer competition, which means quicker sales and potentially higher sales prices! 

At Gatsby Investment, we offer multiple opportunities for investors to get in on the small multi-family strategy. 

Our ground-up multi-family developments, for example, involve building a new structure with the intention of selling to an investor-buyer. Thanks to Fannie Mae, we can look forward to higher-than-projected demand once construction is complete.  

Or consider our multi-family value-add investments. This unique model starts with a full renovation of an existing multi-family building to quickly build equity in the property. Then we lease up the property, creating passive income for our investors. When the property has had two to three years to stabilize and appreciate, we can sell the property, perhaps to one of these investor-buyers who’s taking advantage of the low 5% down payment option.

The Bottom Line

Fannie Mae’s new 5% down payment might directly benefit buyer-investors who plan to live in one of their new units. But it indirectly benefits any investor who’s got a stake in small multi-family properties. So if you’re not already investing in this property type, now’s the time to pick your new investment opportunity.

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