Using HUD Fannie or Freddie for multiple duplexes bought at once?

Question

Hello,

I am looking to get some direction on the possibility of one of the loan programs geared at larger multifamily units such as HUD  Fannie or Freddie that are usually used for larger multifamily properties, but for say 10 duplexes all bought at once 'as a  package' for say 1.5 million. I see it as a 20 unit ;-)  They ARE on adjacent lots, but the zoning  can NOT be changed to be 'one property'.

Is something like that every allowed? I did some googling but did not find this particular issue addressed.

What interests me is both the properties being valued on the financial performance and the longer loan terms with a fixed rate.

Thanks, Dan Dietz

Percy N. · Answer

@Daniel Dietz, have you looked into Freddie's Small Balance loan?

http://www.freddiemac.com/multifamily/product/pdf/...

Jared Rine · Answer

@Daniel Dietz,

Yes, it could be combined net worth.  Being that you're on the extreme lower cusp of loan amount and very small market tier (based on Agency Small Balance) it's going to be tough to get Agency financing.  The terms you have on the table are I think great terms for the properties.  You also can't do subordinated debt with Agency financing.  I think your rate is very good, but how much does getting another 5 years in amortization net out for you?  That'd be the question and I'm assuming you'v ran these numbers.

Daniel Dietz · Answer

@Jared Rine, there are several different properties I have been looking at, a few that are 'off market' but I know the owners and they are retirement age and wanting to get out of the day to day.

One is 3 4-plexs on the same lot for around 960K. Another is 5 4-plexes for about 1060K. Each set are on a single city lot.

I think with 'net worth' rule that would rule me out. Just out of curiosity if it were say a 3 way LLC that was purchasing, would it be the combined net worth of all 3 members?

We are currently being offered 5.25%, 25 year amortization, 20% down (owner can carry up to 10% second if the total DSCR stays better than 1.2) with a 10 year lock and maximum 1% per year increase after than and a max 6% increase of the life of the 25 year loan. Those are the best we found and I think they are very good. The higher cashflow with the longer amortization is very appealing to us.

Dan

Jared Rine · Answer

@Daniel Dietz...Agency loans can go down to $750,000.  How much is this property you're looking at?  Even if properties are not on one parcel, it still would be possible to do this, just unsure without seeing the properties.

For agency loan, yes, your n/w would need to = loan amount or above.  They are stickler about that and liquidity requirements.  B/c they are non-recourse, don't collect tax returns/personal income, etc., they have to base the borrower strength on something.

What terms is your existing lender potentially putting out?  Maybe it's not about necessarily going Agency, but still obtaining better terms from a different lender, whether that be a bank or portfolio lender.

Daniel Dietz · Answer

Thanks for the advice do far!

If I am understanding right 1) "agency loans" start at a minimum of 1 million and up? 2) There is a *possibility* of doing one if multiple properties are on one 'tax parcel'? One that I have been working on has 5 4-plexes all on the same city lot, same parcel number etc.... 3) Am I hearing right that my networth would need to equal the loan I would be seeking? Meaning if I am looking for 1.5M that my total NW would equal that?

It seems like working with my existing commercial lender would be MUCH easier, but the rates and longer amortization are SO appealing!

Thanks, Dan Dietz

Jared Rine · Answer

@Daniel Dietz...You're prob going to have to find a portfolio lender or a local bank who wants to take this on.  HUD is not going to be an option.   Agency maybe through Small balance program but would have to see the property(ies).  There are banks and other lenders who will interpret adjacent lots/contiguous properties on separate parcels as "multifamily."  I just worked on a deal like this in CA - client had 10 4-units, and it was considered multifamily.  If his n/w and liquidity was up to par, probably would have tried for Freddie small balance, but ended up getting bank execution.

Kyle Jean · Answer

With HUD you can do scattered site and the properties don't have to be contiguous, however each building must contain 5 units or more, so grouping duplexes together wouldn't work. You may also deal with onerous third party requirements as the PCNA, appraiser, etc would have to look at each site versus all at once.

FNMA and Freddie would have lighter soft costs but I believe they also have the 5 unit requirement.

Using HUD Fannie or Freddie for multiple duplexes bought at once?

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