Non Recourse Lender for Apartment/Multifam

14 Replies

I have some funds in an IRA that I want to move out of the markets and into real estate. I had saw an article about this in BP but I cannot find it now. Anyone know of that article or have banks in mind that can tackle this with me.

Thanks!

For non-recourse your big three are going to be:

1) FHA/HUD - highest leverage and longest term non-recourse notes, but more particular about what projects qualify, higher programmatic costs (including third parties), and more scrutiny on property condition. No income restrictions required (can be 100% market rate).

2) Fannie Mae/Freddie Mac - Shorter terms than FHA, often carry onerous prepayment penalties (yield maintenance), but faster processing time, lighter on costs, less scrutiny on property condition, and still pretty high leverage depending on market. No income restrictions required (can be 100% market rate).

3) Conventional (bank). For very strong requests and borrowers you may get a local lender to go non-recourse. It's rare and usually lower leverage. No income restrictions required (can be 100% market rate).

You may find some insurance companies or other groups who are willing to go non-recourse but they're usually very low leverage (65% or so).

If you're looking at smaller requests, a small balance Fannie/Freddie program from someone like Hunt, Pillar, Arbor, Sabal, etc will likely be more economical. If looking at larger requests (say $2.5mm+), HUD may be a fit. We do non-recourse apartment loans under the HUD program but there are others in the market as well.

Nic,

In order to invest your retirement funds in real estate (or any other alternative assets) you need self-directed IRA. After you establish one, you can transfer your existing IRA into SDIRA and then use those funds to invest in real estate.

You can use leverage, but since you are not allowed to provide personal guarantee the loan must be non-recourse.

@Kyle Jean can you give us an idea on what the terms are for a non-recourse apartment loan under the HUD program? Say down payment required, interest rate, amortization period, balloon payment required, etc?

Originally posted by @John Woodrich :

@Kyle Jean can you give us an idea on what the terms are for a non-recourse apartment loan under the HUD program? Say down payment required, interest rate, amortization period, balloon payment required, etc?

With HUD you can refinance, acquire, rehab, or construct multifamily properties. All loans are non-recourse and generally provide 85-90% leverage.

Rates for construction/rehab are higher than refi/acquisition. The former is in the low 4%s today, fixed for 40 years. The latter is in the high 3%s, fixed for 35 years.

Loans are fully amortizing.

Originally posted by @Kyle Jean :
Originally posted by @John Woodrich:

@Kyle Jean can you give us an idea on what the terms are for a non-recourse apartment loan under the HUD program? Say down payment required, interest rate, amortization period, balloon payment required, etc?

With HUD you can refinance, acquire, rehab, or construct multifamily properties. All loans are non-recourse and generally provide 85-90% leverage.

Rates for construction/rehab are higher than refi/acquisition. The former is in the low 4%s today, fixed for 40 years. The latter is in the high 3%s, fixed for 35 years.

Loans are fully amortizing.

That sounds better than what the market offers for standard recourse loans!  Lower down payment and better terms than a conventional loan!

Originally posted by @John Woodrich :
Originally posted by @Kyle Jean:
Originally posted by @John Woodrich:

@Kyle Jean can you give us an idea on what the terms are for a non-recourse apartment loan under the HUD program? Say down payment required, interest rate, amortization period, balloon payment required, etc?

With HUD you can refinance, acquire, rehab, or construct multifamily properties. All loans are non-recourse and generally provide 85-90% leverage.

Rates for construction/rehab are higher than refi/acquisition. The former is in the low 4%s today, fixed for 40 years. The latter is in the high 3%s, fixed for 35 years.

Loans are fully amortizing.

That sounds better than what the market offers for standard recourse loans!  Lower down payment and better terms than a conventional loan!

The terms are excellent. I spoke at a number of conferences last year and everyone asks "What's the catch?" after hearing about the program. There's no catch, but HUD is not nearly as "flexible" as conventional financing. It's really best for apartment requests over ~$3mm with little mixed-use components. You can't do condos either.

Because the loans are so long-term, there's also much heavier scrutiny on property condition for existing assets, and it requires Davis-Bacon wages for construction which can add substantial cost to transactions in major metro areas.

That being said we have a number of clients who utilize HUD for their entire portfolio. Because all loans are non-recourse, there's a declining prepayment, and notes can be assumed, we've seen interest for both short and long term investment styles. If your request can fit in HUD's parameters, it's honestly tough to beat.

Interesting question and topic....will be following this.

@Nic A. Your loan terms are not going to be as strong when using ira money and you will have to contend with UBIT tax. This is why I don’t like QRPs.

@Nic A.

If you are self-employed at least on a part-time basis, you could transfer the IRA to a solo 401k as UDFI does not apply to Solo 401k plans but does to IRAs.

@Kyle Jean Thanks for sharing this info! I've been researching Non-Recourse Lenders and the low LTV/LTC is certainly a turn-off. Speaking to those of us starting out in MFH looking at 16-24 units with a price up to $1.5MM, what agency program would you believe to be the best? I'm thinking FHA/HUD.

Originally posted by @Larry Hawkins :

@Kyle Jean Thanks for sharing this info! I've been researching Non-Recourse Lenders and the low LTV/LTC is certainly a turn-off. Speaking to those of us starting out in MFH looking at 16-24 units with a price up to $1.5MM, what agency program would you believe to be the best? I'm thinking FHA/HUD.

If you're just looking to refi or acquire, HUD may be feasible at that loan size, but the soft costs will definitely be higher than a Fannie Mae or Freddie option.

I would probably recommend a small balance program from a FNMA/Freddie lender like Arbor, Sabal, Pillar, etc. You'll be able to get good leverage depending on market, non-recourse, and long fixed rate terms. The main downside is the prepayment structure which can typically be pretty onerous.

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I'm currently developing three HUD deals at my company. While the terms are good, it is a long, intricate process to obtain the loan. Each loan will be in the $25MM range, and there is a plethora of documents required at each step. Not sure about acquisitions, but for development, each of our consultants (architect, civil, etc) has to meet stringent requirements for its plans. Not trying to scare anyone away because it's a great program, but it does require work.

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