All Forum Posts by: Mark Kenney

@Josh Lewer

Thanks for posting...fantastic information!

@Account Closed

There’s a lot to think about here, and I’ve seen some really good points already in this discussion.

I’ve completed over 120 larger multifamily deals and partnered with many people along the way—some good and some not so good.

Here are some things I’d strongly recommend considering:

Loan Structure Matters

• While 2–4 units can be a good way to start, purchasing 5+ units opens the door to more lending options—especially if you don’t use your mentor for the loan.
• Loans for 2–4 units are based on comparable sales, not NOI, and are often recourse loans (meaning personal liability). In many cases, 5+ unit loans can be non-recourse. But, I will also want you that non-recourse is not always truly non-recourse, so you need to fully understand this.
• Bigger deals mean bigger problems when things go wrong. Covering a few thousand dollars a month on a small property is manageable; covering tens of thousands on a struggling large deal is a whole different problem.

Mentor Involvement & Alignment

• Would your mentor invest in the deal as a passive if you got a loan elsewhere? If yes, that’s a good sign they believe in the deal.
• Even if you plan to use your mentor for the loan, get quotes from other lenders. This will show you how the market values the property.
• If you get a loan elsewhere, will your mentor sign as a guarantor?
• If your mentor is lending, understand every term—personal guarantees, step-in rights, repayment terms, etc.

Deal Analysis & Operations

• Get 2–3 local property management companies to provide independent proformas, then compare those to your own analysis.
• I would not self-manage. You want an experienced professional managing the property from day one.
• Consider giving your mentor a small equity slice to keep them motivated to support the property long-term.

Risk & Legal Protection

• Know exactly how much you’re investing and the ongoing liability—especially if your loan has a personal guarantee.
• For large deals like a 100-unit property, fully understand the differences between loan products. Match the loan to your planned hold period, but lean toward a longer term than you think you’ll need in case you hit a down market when the loan matures. Fully understand all the pre-payment options and also if the loan can/cannot be assumed by a new Buyer. Does the loan allow for a Supplemental loan down the road?
• Hire both a real estate attorney and a contracts attorney. Even if you trust your mentor completely, protect yourself. I’ve learned firsthand that people can surprise you when money’s on the line.
• Structure agreements assuming everything could go wrong—and pray it never does.

If your appraisal comes back and it seems out of "whack", you want to see about ordering a new one. There were a lot of issues with appraisals in the past which was causing appraisers to come in lower than normal on values.

@Sultan Ali

There is no doubt early lender engagement is critical. The typical mindset of a borrower is…”I don’t’ want to tip my lender off that I am having issues.”

The balance between trying to protect your position and keeping open lines of communication with the lender is a tricky one. The idea that being upfront with your lender might tip them off to problems and make things worse is understandable, but not engaging early can lead to worse outcomes when they get frustrated by lack of communication and surprises.

It’s also a tough pill to swallow that some lenders will act out of spite or pure strategy, rather than being reasonable partners. And, the reality is a loan modifications isn’t always as straightforward or even beneficial as you might think. The requirement to bring more money to the table for a loan modification, while still being uncertain of the lender’s true intentions or what a loan modification will even look like, adds a lot of complexity and uncertainty to the situation.

A loan modification will typically also include a borrower signing a Pre-Negotiation Agreement (PNA). It's essential to get the legal advice you need and fully understand what’s at stake before agreeing to sign anything. Many borrowers are too eager to fix the immediate issue without realizing how that PNA could limit their flexibility down the road.

The key here, especially in this climate of uncertainty, is knowing your options, being prepared to pivot, and having the right legal and financial support. Navigating these waters is tough, but the more informed and proactive you are, the better. It’s a game where being transparent and getting ahead of issues early can be the difference between controlling your property’s fate or losing it.

@Gabriel Watts

We are in 15 states. As you stated, the floating rate issue exists regardless of market.  

Some issues such as insurance increases has applied across the country, but the coastal markets have been hit much harder. The time to evict has varied drastically across different markets. New supply has varied across various markets. Also, while cap rates have increased across the county, the percent of increase has varied drastically. For example, one market we are in saw the cap rate increase 8% and another market we are in saw an increase of 70%. 

@Chad Clark

If the net worth and/or liquidity is your main issue, that by itself should not hold you back. There are other people who will sign on a loan (for a fee) for you or along-side you. There are even platforms out there now with the sole purpose of providing people who can sign on loans for others. So, again if this is your main issue, I really don’t think you have a big issue that needs to be overcome.

I can’t really provide legal input on what the lenders can/cannot track down, but you have to realize these guys are in the business of collecting money.

Please go ahead and connect with me and I can provide the contact information.

@Chad Clark

Generally speaking, purchasing 5+ units moves you into the commercial lending category, which opens up more financing options. If you take out a loan, make sure you understand whether it’s recourse or non-recourse—and don’t be fooled by the term “non-recourse.” There are plenty of hidden clauses (“gotchas”) even on non-recourse loans that many investors are only discovering the hard way.

For loans on 5+ units, lenders typically require your (and your partners’, if applicable) net worth to be at least equal to 100% of the total loan amount, plus liquidity of 10% or more of the loan amount. Keep in mind that the 10% is post-closing liquidity—if you use cash for the purchase, it no longer counts toward liquidity after closing.

I don’t focus much on development. Nothing against it, but it’s a different game with its own risks and rewards. I would be extremely cautious about building unless you have a partner who’s done it successfully many times.

If you’d like, I can connect you with a mortgage broker I’ve worked with for years who specializes in multifamily lending.

@Frank Pyle, Awesome input! For the planning for recapture…I would suggest putting the future funds needed into an account that is very liquid and safe. Don’t plan on selling something in the future to pay for this liability. 

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@Evan Polaski, Great insights! I totally agree that many LPs can't just write as much as they typically think they can...since most of them would not qualify as a real estate professional.