MF Financing Question

[Matt Nettles]

May be a dumb question(s) but I am still trying to learn the financing aspect of syndication.

I am understanding of recourse v non recourse but what are the best case scenarios to target when financing a deal in?

Obviously non recourse is the way to go, and the lowest interest rate possible but I think I’ve heard multiple times that the first few years is INT only payments and I’m not understanding what makes that a good thing?

Hope that made sense

[Scott Runyan]

Another thing you want to be aware of when financing multifamily is matching your debt to your exit strategy. A lot of commercial financing (especially agency debt) comes with very high prepayment penalties. 

If your goal is to rehab and stabilize a property in three years. Long term debt wouldn't be a good idea as the penalties for selling might wipe out all your returns. Also where the market cycle is, having short term financing may have you trying to refinance when values have fallen and lenders have tightened up. 

A lot of people will get debt without thinking through all the pros and cons of the financing. Matching the right debt with your project goals is key to maximizing your returns.