Any apartment lenders that can do 80/20 these days?

25 Replies

Many books that I read have mentioned about making an apartment deal with a 80-20 loan structure. Some of them even suggested the 20% down can be using private money and some could be carried back by the seller. I poked around some commercial lenders recently. Most of them cannot go beyond 60 LTV. I only found one that can do 75 but the rate is super crazy. Any updates on lenders that can still do 80-20?

@Carlo C. , to secure 80% leverage will depend on the asset class, number of units, location, occupancy, strength of sponsor and operator and other factors.

About 3 months ago I bought a 240 unit deal and got 80% leverage by taking the asset down with a Fannie Mae loan execution. So it does exist.

@James Eng is an active lender and he might be able to share more insight.

I think it has to do with the size, the area, your experience in the area, and the asset itself. 80-85% of what I've done in the last year (about 1,300 units) has been done at 80% LTV. And that's been split among Fannie Mae, CMBS, and Community banks. Where I've not been able to are where I am new to the area and my property management company is also new, or the asset is more of a turnaround. I just had to do 70% with Freddie on a 210 unit complex in St Louis because it had 80% economic occupancy vs 94% physical occupancy (aka crappy current management) and this was the first property in the submarket for both my Fund and my property management company. If you are working in an area where you have other assets, or are working through a property management firm who has other assets in the area, and the property is in decent shape with occupancy at 90% or better it should be a no-brainer to get 80% LTV going in on an acquisition. And rates should be fine too on that - right now Fannie should be 4% or less and Community Banks between 4 and 4.25%. I'm assuming you are buying something reasonable in size - like over $1 or $2 million. If the loan is really small, rates will be higher. Its a great time to be borrowing now - do all you can while the climate lasts.

80% financing isn't something that's common. I can count on one hand the amount of loans I've closed at 80% in 10 years. 

The most common LTV for multifamily loans is 75%. Banks can be open to allowing for a 2nd, but any conventional lender operating today is going to require you to inject some of your own funds. If you need to put down 25% figure 10-15% being from you and the lender allowing for a 10%, maybe 15%, second.

Keep in mind that any seconds or secondary financing payments will be underwritten by the lender holding the senior debt. They'll want to know that the property can service all of the debt load.

You want deals like that, or better, you need to build the relationship. This business, especially commercial lending is all about the relationships, and how good you are at this business. You do it just right, they will not only bring you really good deals, they finance it at almost any terms that make since.

Some of you large(r) investors can secure 80% financing because of the size of the properties you are buying and the lenders/programs you are using. It's far easier to secure that kind of leverage on a multi-million dollar agency loan, but 99% of the members here aren't there yet. 

Even on a Freddie SBL loan you still need to be in a Tier I market to get 80% financing. I know that my clients who buy in Dallas and Houston can only get 75% under that program so there are limitations even using agency financing. 

I just don't want people comparing apples to oranges.

Shouldn't you be focusing on the ROI anyway? Perhaps a smaller building with a better return is better than larger properties with lower return? Then if you have to put down 25% it still makes more sense! That is what I do, I actually have a 4plex for sale now that fits that profile.

@Darryl Dahlen Is that a recent change in the SBL loan sizing? I've been doing 80% LTV Freddie SBL's in Tier I & II markets and 75% in the Tier III & IV markets. But I haven't done one this quarter so maybe it changed.

@Carlo C. I'm guessing your loan size is well under $1 million. I'm no expert in that space. Try calling some local credit unions. They might be able to push the leverage up a bit. Also what do you consider a high rate at 75% LTV?

@Brian Adams @Mark Mosch You guys ever push the leverage on your large Fannie deals to 83-84%? Just asking out of curiosity...I haven't had a client want to go that high in leverage.

@Eric Schleif - As you surmised, didn't want to go that high on the leverage, since i wanted to keep a nice safe debt coverage ratio. What we have been able to do is hit up Freddie for a supplemental after 18 months when NOI growth has occurred and if the cap rates have held stable or dropped. At that point, you can take more out and get in effect 85-90%.

@Darryl Dahlen - Just as an FYI, it's not just the core 6 markets you see 80% on. I've done 80% in Little Rock on 3 properties, 2 in Kansas City, 3 in Northwest AR, Lawrence KS, Dayton, and 2 in Memphis - in the last 14 months. And this not only is via a Community Bank but via Fannie, Freddie SBL, and CMBS. So it's definitely out there if you have decent cash flowing deals in solid secondary markets.

Originally posted by @Eric Schleif :

@Darryl Dahlen Is that a recent change in the SBL loan sizing? I've been doing 80% LTV Freddie SBL's in Tier I & II markets and 75% in the Tier III & IV markets. But I haven't done one this quarter so maybe it changed.

@Carlo C. I'm guessing your loan size is well under $1 million. I'm no expert in that space. Try calling some local credit unions. They might be able to push the leverage up a bit. Also what do you consider a high rate at 75% LTV?

@Brian Adams @Mark Mosch You guys ever push the leverage on your large Fannie deals to 83-84%? Just asking out of curiosity...I haven't had a client want to go that high in leverage.

Maybe a better way to say it is that you're not a shoe-in for 80% financing in a Tier II-IV market with Freddie. 

@Carlo C. That's a ridiculous quote...something's off. Feel free to PM to talk through the deal in more detail. 

@Mark Mosch Good strategy with the Freddie supplemental. All you really have to do is pass the refi test, right? I had one blowup because of that a few years back.

We recently purchased a 42 unit building for $2.15M and were able to negotiate an 80LTV with a small local bank.

The loan structure was:

80% LTV

4.25% Interest

5/5 ARM

25 year Amortization

20 year term

minimal closing costs

We pushed very hard to get one of the lenders to 80% LTV they were very reluctant and said " they had never gone above 75% LTV"

After hearing "no" several time on the request to go from 75-80 LTV I offered to deposit the 5% difference (roughly $100k) into a CD at their bank for 6 months. This would allow the bank to benefit by being able to go lend out the CD money and earning more interest on it. Because banks have a fractional reserve they get to lend out 10 times the amount they have on deposit. So hanging the 100K carrot in front of them was like hanging an extra Million dollars for them to go lend out and earn interest on.

This also gave us our money back to use else where quickly. Ultimately we agreed to a 12 month CD which earned 1% interest. 

Then the same bank allowed us to secure a $90k business line of credit against the 100k CD at  3% interest rate. 

When negotiating you have to figure out what the other side wants, and then be creative enough to give it to them in a way they never even thought of. Always look for ways to add value to your business partners like lenders, investors, brokers, etc. 

I was told by lots of lenders you cant do that. stay determined, stay creative, and get it done. 

Best of luck!

80% agency debt is not unusual at all if it's not in a fnma pre-review area. You do need experience though to get that. We get 80% including rehab in the DFW area, and just for comparison, fnma would only go to around 70% on a deal in Tulsa recently. Freddie was fine with 80%, but the small balance program doesn't provide financing on the rehab so its out of pocket, effectively lowering your LTV.

We closed on a 78 unit property last week, and got a 75% LTV loan through @James Eng that was 4.5%, only a 1% early refi penalty, and NO prepay penalty if we were to sell.  This included 75% of a $5700/dr rehab budget.  The deal wouldn't qualify for agency debt due to very low occupancy and heavy rehab needed, so James got us a great bank loan.  We barely even had financials so it's pretty impressive that James was able to pull that off.  The lending is definitely out there if you can put the right sponsorship group together.  

@Carlo C. In order to get 80% LTV, you need to use a agency lender (Fannie Mae/Freddie Mac) on a acquisition (refinances are limited to 75% LTV). You will need to find an apartment property with the following characteristics: 90% occupied for past 90 days and limited deferred maintenance (less than $5,000/unit). In addition to the property qualifying, the sponsorship group needs to qualify through experience (at least 1 year of prior multifamily ownership experience or Fannie Mae/Freddie Mac experience) and balance sheet (net worth equal to or greater than loan amount and post close liquidity of at least 10% of the loan amount).

Minimum loan amounts for these agency loans are $750K, but lenders typically want them over $1MM.  

I just closed a 80% Loan-to-cost acquisition loan with Fannie Mae yesterday in Beaumont, TX on a multifamily property built in the 60's.  It can be done, just have to know where to go for the loan.

@Brian Adams and @Tom Lafferty are experienced multifamily operators if you need more advice on the operational side of the business.

@Mike Dymski Typically Fannie/Freddie want the 2nd lien with the seller paid off.  If you are going to agency debt for a refinance, you should have enough in loan proceeds to pay off the 1st and 2nd mortgage and put some cash in your pocket.  

Shoot me a message. I have investor programs that allow for 80/20 deals with a 680 credit score and some experience. Fees are much cheaper than hard money and you are not limited by DTI.


@Mike Dymski as @James Eng said you'd have to satisfy any 2nd liens to get agency debt. I don't really know any lenders that will allow a 2nd lien on an asset in the likely scenarios we are talking about. We do a good amount of deals with mezz debt but I don't think that was what you were asking about.

It also really depends on your market as far as 80% financing goes. Freddie/Fannie is great because they are national and can lend pretty much anywhere. But you have to know your markets. We place 80% ltv loans all day in the NYC metro area (and other markets) with 30 year amort and they are rarely with Freddie/Fannie. The local banks have much better terms. In other markets Freddie/Fannie is 100% better in terms. You just need to know the market you're in. Or call me, lol.

For smaller loans (under $1MM) you can also look at local banks. I was able to get an 80/20 loan on an 8 unit based on the relationship my PM had with the bank. They lend their own money so they were actually against lending anything more than $1MM to a single investor as they didn't want to be over invested. They made me personally guarantee the loan and had other criteria I had to meet, but it's possible to get an 80/20 loan if you keep talking to people, thinking creatively and leveraging your team. 

In the St. Louis area local banks lend at a 80/20 ratio all day assuming they like the credit and the buyer has strong financials. I have heard of 7 year fixed or floating rate loans and obviously be prepared to personally guarantee the loan. I am also assuming the property already has high occupancy, you have experience, good cash flow, etc. 

I found one that can do 80/20 but they don't allow seller carry back and 20% needs to be in your own skin. Also the loan needs to be recourse. Is it common to get recourse or non-recourse?

How do you guys hold titles? I know many people use LLCs or Corps to hold titles but they are not very safe, especially a single-member type. I'm just curious if there are any lenders that can close in, at least, living trusts with a different person as the trustee.

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