As multifamily syndicators, we are focused on finding quality deals and raising money. But securing the financing you need can make or break a real estate deal and reaching out to your lender early in the process will save you a great deal of time—and keep you on track to close as planned. So, what do you need to know about multifamily financing?
John Brickson serves as Director at Old Capital, a Dallas firm that specializes in arranging financing for commercial real estate investors across the country. John’s team focuses on $1M to $30M loans on multifamily properties, and in 2017, Old Capital closed more than $750M in loans. John’s market insight and established lender and equity relationships afford his clients a tailored, best-in-class financing solution.
Today, John joins me to offer insight on interest rates in 2019. He explains the difference between working with directly with a lender versus using an intermediary and describes why it’s safer to invest in properties that qualify for Fannie Mae or Freddie Mac. John also shares advice around financing smaller deals and covers the pros and cons of taking out a bridge loan. Listen in to understand the most common mistakes investors make when it comes to financing multifamily deals and learn why you should get your lender involved early in the process!
Key Takeaways
John’s insight on interest rates
- Movement in last quarter of 2018
- Lock in long-term, fixed rate financing
The difference between direct lenders and intermediaries
- Direct lender = work with bank to arrange loan on own
- Intermediary = broker (save time, keep closing on track)
John’s take on the best properties for multifamily investors
- 5-units and above
- Stabilized and cashflowing (qualify for Fannie/Freddie)
- Target loan size $1.5M
John’s advice around financing smaller deals
- Finance acquisition + rehab with bank loan
- Increase value of property to >$1M
- Do cash-out refi within 12 to 24 months
The purpose of a bridge loan
- Finance acquisition when property not stabilized
- Sell or cash-out refi with Fannie/Freddie once stabilized
The current terms for bridge loans
- Banks: <$5M = 75% LTV, 5.5% (full personal guarantee)
- Debt funds: $5-$10M + 80%, 5.5%
The risk associated with bridge loans
- Shorter term, reach maturity in 2 to 3 years
- Could be in recession, few lending options for refinancing
The best candidates for bridge loans
- Investors with significant experience
- Investors with significant net worth or cash
How lenders handle loan proceeds earmarked for rehab
- Submit draw request (proof of work complete)
- Lender pays contractors directly
The most common multifamily financing mistakes
- Choose yield-maintenance prepay over step-down
- Fail to think about exit
- Overlook agency financing options
- Wait until LOI accepted before reach out to lender
Connect with John
Call (913) 638-8871
Email [email protected]
Resources
Real Estate Guys Goal Setting Retreat
Podcast Show Notes
