All Forum Posts by: David Frasz

@Eshmield Ruberté - I am a multifamily lender and @Will Stewart is spot on.  Commercial financing (generally prohibit owner occupancy) is based on the fact that the property is a revenue generator where its expenses and debt service are supported by its own cash flow.  Because of this, commercial lenders look at your net worth and liquid reserves as well as relevant business and real estate experience...not your Debt-To-Income or your employment situation.

@Hari Mann From your first post it sounded to me that you purchased a 35 unit condominium complex and that you are treating the property as an apartment building?  Your follow up post indicated a "low percentage" of owner-occupants...is that 0% since you are operating as rentals?  From a commercial lending perspective, this would be treated just like a multifamily apartment property and should not be difficult to finance.  I am an agency lender and have closed several condominium transactions this year alone.  I may be missing something based on the limited information but either way, happy to connect to discuss.

@Tim Ryan Nice work!  Great numbers!  It's impressive to be out of state and setting up a new management company is a business in itself!

@Hud Malik I am not too familiar with the 1-4 unit financing space but I am a commercial (5+ unit) Fannie Mae lender and on it's face, what you were told doesn't sound totally accurate to me.  That said, I would point out that residential lenders (banks and otherwise) all have slightly different profiles for their lending criteria so I would certainly discuss your plans with multiple lenders.  Good luck!

@Shant Mahserejian  Financing is still possible but it's important to mitigate any market concerns with other deal/sponsorship strengths.  If you're looking at larger commercial multifamily, I'd be happy to discuss your options and any deals you have your eye on.  Shoot me an email or a call anytime.

@Shant Mahserejian also note that, if you plan to use debt, Lenders will look critically upon the considerations that @Charles Carillo mentioned.  As a direct Fannie/Freddie lender, I can confirm that neither agency is very interested in doing business in Vegas/Nevada at present and have explicitly tagged the market as a "market of concern".

@Jerid Meagan I am a multifamily lender of Fannie Mae and Freddie Mac non-recourse loans nationwide so I'll jump in here with a couple of quick notes on the commercial financing side...

As an Agency lender, we are still putting quite a lot of money out though where 75-80% LTV was the norm previously, we are now at 70%-75% in most cases. Rates with Fannie Mae and Freddie Mac are super attractive, near historical lows, and the loans are non-recourse with 30 year amortization...so there is still a lot for investors to love. That said, there is more scrutiny on every deal and there are debt service and other reserves collected at closing. Though you can get this money back after a time, it initially reduces your cash out or requires you to bring additional dollars for down payment.

As @Jay Hinrichs mentioned, I've seen private/hard money become more expensive and more selective.  With respect to banks, I am sure it varies across the country and by the size and perspective of the bank but I have seen that commercial financing from banks has mostly dried up, even on low-leverage deals.

Reach out if you'd like to chat more about what's going on in the debt markets!

@Matthew Ramage You've gotten great feedback from @John Warren, @Nathan Gesner, and @Bjorn Ahlblad.  I don't have too much more to add at the moment without knowing your situation, but multifamily is much more like running a business than a 1-4 unit property.  I think that in addition to books, it is important to have mentors and pros you can trust and use as a soundboard as you navigate the process (Attorney, Lender, CPA, Sales Brokers).  You can find some of those resources here, like you are doing, so as John said, you are on the right track.  I am a commercial multifamily lender specializing in non-recourse, Fannie Mae and Freddie Mac financing for properties 5+ units nationwide.  I am happy to be a resource for you if you'd like to discuss your ideas in more depth.  Let's connect and feel free to reach out anytime.

@Ryan Corcoran I am a direct multifamily lender for Fannie Mae and Freddie Mac and I agree with @Eric Johnson that if you are planning to do substantial renovations and increase value by 30%+ you might want to get a bridge loan (short-term, higher interest, higher LTV) and then refinance into a "permanent" loan once lenders are putting capital out more freely. As Eric mentioned, banks are pretty tight right now. As @Matt Lefebvre mentioned, we can offer 30 year fixed rate loans on multifamily through Fannie Mae but the minimum loan amount is $1M, so it doesn't sound like your deal would quite qualify.  Happy to chat sometime if you have other multifamily financing or other questions.

@Zachary Giles I think your question is very much a personal one and you should certainly evaluate others' opinions knowing that there isn't a single right answer.  As a non-recourse Fannie Mae and Freddie Mac lender in the multifamily space and as a lifelong investor myself, the way I look at is as follows:  Capital costs money and it generates money.  If the capital I would borrow will generate a higher return than it costs me (interest rate), that is a net positive calculation.  For example, investing $50K in a rental property that will yield 8% versus paying off $50K in student debt which carries a rate (cost) of 6%.  By the numbers, the net gain here is the 2% delta.  In other words, the opportunity cost of paying off the student debt is 2% of the $50K.  

As you can see, this calculation makes increasing sense as the delta grows.  For example, if I am buying a car or a boat and I can finance $20K of the cost at 4%, I will do so (assuming I have the money to afford it with cash in the first place) if I can invest the capital into an investment that will yield me 10%, for example.  Here, the delta that the capital is generating for me (and opportunity cost of not financing the vehicle) would be 6% of $20K.

So again, my calculus is that if the capital can generate a higher yield than the interest I would be saving by paying off my debts or not assuming them in the first place, then I say yes to the debt.

Of course, it is always important to factor in the risk of the expected yield.  Taking an interest free loan to put the money into a savings account with a 2% interest rate would be pretty secure but running up a credit card at 16% interest to invest in a project that you hope will return you 25% may not be a good decision.  

Also, as @Chris Pasternak (and probably others, long thread) noted, there are also intangibles such as peace of mind and flexibility that one could argue absorbs some opportunity cost.

The calculus also involves other assumptions such as:

- I have opportunities to invest capital - it does no good to pay interest on debt that you can't put to work

- There are things that I must buy (such as an education or an economy car to commute to work) - some things need to be paid for one way or another

- I will maintain reserves for living expenses - it is never a good idea to spend your last dollar, whether for an investment or for a purchase.

- Investing and growing long-term wealth is important and worth the headache of making such calculations