Multi Family Investing - In depth -Part 2

[Michael Jacobs]

Truly happy to see so many people benefiting from my previous posts. I was thinking for some time about what my next topics should be about and I finally decided to start it off with yield maintenance. 

When you have finally received your terms from a lender something that every investor should look out for is yield maintenance. Yield maintenance is a penalty that your lender will charge if you as the borrower pay your loan early. Depending on what kind of loan you take out lenders might hit you with, for example a 5,4,3,2,1 yield maintenance and this representing how many points they will charge you for prepaying your loan within the first, second, third ....... year. Yield maintenance in many cases can be negotiated but not altogether removed. As an investor you have to understand where the current interest rates stand and where you believe it will be in the coming years and its also important to see if the plan that you are proposing to your investors is a 3-5 year plan or 5-10 year plan. 

Another thing that you should look out for in the terms is the soft and hard locks on income. A soft lockbox, is after you received your income generated from your property you can allocate the excess funds towards distributions to your partners, maintenance etc. If you have a hard lockbox that means all the income that is generated will be held in a reserve account in case of a possible shortfall in the future. My recommendation always negotiate these terms as to make it easier for you as an investor to have access to your capital as fast as possible. Fluidity and speed is imperative for any real estate deal. 

I will keep this one short for now, but if anyone has any questions I welcome you.

Thank you and Happy holidays.