All Forum Posts by: Brian J Allen

i do agree there are opportunities out there.  I have had buyers just start looking as they see the future might be good for them.

There’s talk of a potential recession, and while no one can predict exactly when or how severe it might be, the economic signs are raising red flags, especially regarding housing affordability.

Here’s some data that shows the growing financial pressure on Americans:

- Auto loan debt is at an all-time high: $1.55 trillion

- Student loan debt has reached $1.61 trillion

- Credit card debt is also a record high: $1.21 trillion

- The average credit card APR has risen from 12.9% in 2013 to 16% in 2021 and now sits at 28.72%

These numbers paint a picture of a consumer economy stretched thin. So, what does this mean for the multi-family housing market?

Homeownership May Become Less Attainable

With debt at historic highs and borrowing costs rising, it is becoming harder for many Americans, especially first-time buyers, to qualify for a mortgage or save for a down payment. For these would-be homeowners, renting may not just be a choice but the only realistic option.

This shift could keep more people in the rental market for longer, extending the average rental lifecycle and increasing demand for multi-family housing.

A Silver Lining for Multi-Family Investors

While affordability challenges are concerning on a personal level, they may also present opportunities for small and mid-sized investors.

- Investors with strong balance sheets and access to financing are in a better position to acquire small multi-family properties and single-family rentals.

- As rental demand grows and homeownership slows, well-located and well-managed rental properties could see lower vacancy rates and more stable cash flow.

- Large institutional investors often focus on large-scale developments, leaving smaller assets to nimble local operators and independent investors.

A Long-Term Shift in the Housing Landscape?

If these trends persist, the U.S. homeownership rate could decline, at least temporarily. In its place, rental housing, particularly smaller multi-family units, may become increasingly important in meeting the nation’s housing needs.

Even though the economy feels uncertain, multi-family housing is usually one of the steadier parts of real estate. For investors, that could mean some solid opportunities.

Glad to help in Worcester, MA I do a lot of investment and rehab projects with clients like yourself.

@Joshua Lopez and @Erica Larence-Penna please feel free to reach out.  Always looking for good attorneys for my clients.  I sell multifamily in Worcester.  Welcome!

@Nelson Martinez there are definitely agents out there, myself included who don't have time to chase people and leads.  If you can provide that service, like a wholesaler but without having to put things under contract you can definitely make $.  Let me know when you want to start!

@Nelson Martinez Welcome to Worcester and BP.  Feel free to reach out.  I would be glad to help.  We work with all of these things multiple times a year.  

@Jaycee Greene there aren't that many because people can still sell them and get out.  But the reality is that these banks have loans supported by bad assets that would have been been considered less valuable and have smaller purchase prices if the appraisers put more weight on the quality of the buildings.  60% of the inventory in Worcester was built between 1890-1920 so these aren't just old, they are super old. The best buildings are often the ones that had fires and had to be rebuilt.  

@Jaycee Greene, i realize the appraisers should be making a differential but on small multifamily 2-4 family in Worcester, MA in particular, if the roof is 25 years old or 1 year old they dont make an allowance, if the electrical is from 1930 or from 2020 they don't make an allowance, if the plumbing is cast iron with copper, vs PVC and PEX they don't account for that. I think if the buildings are better and require less or no CAPEX they should be more attractive to banks. or if the banks reduced funding on junk buildings that bring in rent, there would be less foreclosures on those when the big CAPEX projects hit.

Let’s take a closer look at this question, specifically in the context of multi-family properties.

At first glance, it might seem logical that newer properties would qualify for lower interest rates. After all, they're less likely to need major repairs, often attract higher rents, and typically come with lower capital expenditure (CAPEX) risk. But that's not how banks usually think.

The Bank’s Perspective

When banks determine interest rates, they primarily focus on a few key factors:

- Borrower’s creditworthiness
- Loan amount
- Loan term
- Current market conditions

Notice what's missing? The age of the property.

Here’s a breakdown of why that is:

Banks evaluate you, the borrower, not just the building. A strong credit score, reliable income, and solid financial history reduce risk in the eyes of a lender. Whether the property is brand new or 50 years old is secondary to the borrower’s ability to repay.

The property serves as collateral, but what matters is its current appraised value, not necessarily how new or old it is. If the property appraises well, even an older building can support a strong loan.

Interest rates are driven by broader economic forces: inflation, Federal Reserve policy, investor demand for mortgage-backed securities, etc. These affect all mortgage loans, regardless of the property’s age.

Should Property Quality Matter More?

I think so.

Having walked through countless multifamily buildings—some in pristine condition, others complete fixer-uppers—I can't help but question this standardized approach. I've seen how a $30K kitchen and $10K bathroom renovation might only yield a $200/month rent bump. That's a long ROI horizon and a real financial burden for investors.

So here’s the big question:

Wouldn’t it be more prudent for banks to offer better rates on higher-quality, newer properties?

In theory, yes. Newer properties often require less CAPEX, have lower maintenance risks, and can attract better tenants. That should translate to a lower risk for the bank—and, logically, a better interest rate for the borrower.

Flaws in the Traditional Appraisal Process

The three standard methods of valuation—comparable sales, income approach, and cost approach—all have limitations:

- Comparable Sales can be wildly inconsistent, especially when neighboring properties vary greatly in condition.
- Income Approach is useful but doesn’t account for hidden future costs (like a $20K roof replacement in 3 years).
- Cost Approach often glosses over the real-world quality and age of systems like HVAC, plumbing, and electrical.

In short, these methods can miss key nuances that materially affect the risk of the deal, both for borrowers and lenders.

A New Way Forward?

Imagine a lender that factors in long-term building health, deferred maintenance, and CAPEX risk into their pricing model. A bank that rewards buyers for investing in quality, low-maintenance properties. That could be a game-changer.

Now, the challenge is to find a bank that sees things the same way.

@Mike Anderson, I like your thinking.  Keep taxing the producers until they leave.  Sort of like Atlas Shrugged.  Who is John Galt?