All Forum Posts by: Tony Talamas

@Ray Li @Scott S.

@Ray Li, the answer depends on the lender. Generally speaking, with me, 90% occupancy for 90 days is considered stable and ready for refi, but I’d need to know the whole story.

The amount you cash out depends on how soon and what you’ve done to the property.

If you purchase a multifamily property and improve it by spending money on capital improvements, increasing rents and occupancy, you can typically pull anywhere between 80-90% of your total cost within 12-24 months – at least in my space, multifamily loans between $1 to $6 million.

To piggyback off of Scott S. comments, the more seasoning you have the better. Now every transaction is different and you may be able to refinance much sooner if there’s a good story to your transaction. What size is your anticipated loan request? What’s the story with your transaction? Was the property poorly operated but in a good submarket? How much have you spent in capital improvements? For multifamily loans over $1 million, stable is considered 90% occupancy for 90 days. Some lenders may want to see more but with me, 90% for 90 days with a good story is doable. If you can demonstrate 90% occupancy for 90 days, and you’re numbers are in-line with the sub-market, you should be able to refinance.

You will have to show lenders…..

- Why was the property poorly performing before you acquired it? Is it the submarket, the operator or both? If it was a poorly managed property in a good submarket, and you’ve improved the property, you can typically pull cash out.

- How much did you spend on capital improvements? Document all of your capital expenditures as this adds to your cost basis and demonstrates you care about the property. Document how much you spent, on what it was invested and when it was spent? Be sure to separate non-recurring, capital improvements from operating expenses. I can’t tell you how many times I’ve seen non-recurring expenses mixed with recurring expenses. This impacts your underwriting. If you perform capital improvements in-house, keep detailed records as to the labor hours and supplies and separate those from your operating expenses. I can’t stress this enough.

- Keep detailed records of the monthly occupancy and collections from the moment you purchased the property. When it comes to collections, you want to document (1) asking rents, (2) loss-to-lease, (3) physical vacancy, (4) concessions, and (5) bad debt / write-offs. This will determine your economic occupancy, which is looked at closely.

PM with more questions as you get closer to identifying a multifamily property for purchase

Kenneth, if you're trying to determine how much of a loan you might qualify for on a new transaction, every bank is different but generally speaking, banks will typically analyze your global cash flow – income from all sources and all liabilities – and consider the new property's cash flow to determine how much to lend you. Non-recourse lenders will look to the asset itself. For example, I want to see a minimum post-closing liquidity equal to nine months of P&I payments and a net worth equal to the loan amount to consider a non-recourse loan. The property must have a minimum DCR of 1.25x. Does this answer your question?

TJ – The two ways to value are by using income approach and sales comparisons. Income approach simply takes the subject's NOI and market cap rates into consideration. Remember to consider market expenses. The sales approach looks at similar properties and compares the value per unit. Do you know at what price similar properties trade? I agree with the prior comments. You should be provided financials; otherwise you're making assumptions based on the submarket, the age & condition and so much more. Without financials, no one should be offended by a low offer. If you do proceed, definitely get a property condition report performed by a qualified multifamily inspector.

Robert - how small is this transaction? What's the purchase price and how much is the rehab?

Nitin - you should be able to get one loan on this. Call me next week to discuss and I'll point you in the right direction if it can be done.

Congratulations Brent! With 100% occupancy and improvements to the property, it sounds like you have room to push rents!

Since you plan to refi after raising rents, keep detailed records of your improvements, rental increases and collections. It will make a cash out refi in a shorter period of time easier to accomplish and helps get you max proceeds.

@Dan Hatch – lenders typically want to see a minimum of nine months P&I as post-closing liquidity to get a deal done. Every lender will look at it differently though. I’m assuming that answers your question. If not, feel free to PM me.

Tony –

Have you engaged a commercial property inspector to assess the extent of deferred maintenance and to assess condition of electrical, plumbing, etc?

Deferred maintenance can impact your financing. Depending on the execution, you may be able to finance this or you may have to come out of pocket. Either way, it sounds to me as though you should renegotiate the purchase price.

With respect to financing, depending on the extent of the deferred maintenance, most lenders will expect it to be cured either prior to acquisition or soon after, i.e. six to 12 months. I would renegotiate purchase price subject to the severity and cost of the deferred maintenance. Feel free to PM me if you want to chat a bit more about how to underwrite this for a lender.

Scott – with respect to your comment on commercial loans, I’ve worked with and helped a lot of SF investors who have transitioned from SF into multifamily investments, some of whom were passive investors in other deals. Do you have specific questions / concerns that I can address with respect to financing multifamily properties? The options change considerably when you hit the $1 million loan amount.

Freddie Mac Small Balance Loan program provides multifamily loans between $1 million and $6 million. They will go up to $7.5 million for properties with 75 units or less.

Fannie Mae has a small loan program that provides loans between $1 million and $5 million for multifamily properties and mobile home parks.

Brian - are you referring to SF or MF loans? Most of the conversation appears ot be around SF but when you ask about commercial, I think of MF. I can address you question in some detail if it pertains to multifamily financing for loans over $1 million. Please advise if so and I will address your question.