All Forum Posts by: Spencer Gray

What terms are you seeing from your local banks?

Right now with the COVID debt service reserves, Fannie and Freddie aren't as attractive as they were, even with a few years of i/o. 

We have been going the bridge loan -> HUD 223(f) route. Recently quoted for 2.2% + .25% green MIP, 35 year amortization/terms, 85% LTV, COVID escrows can be covered by a letter of credit from our bank (unlike Fannie and Freddie).

We had a large group looking to be the main source of equity for a large project ($50M+) where they were all real estate professionals and were primarily looking for a low risk vehicle that would throw off significant depreciation via the cost seg. 

They even wanted to front load the depreciation in the first year to their group with the remaining investors would get a catch up until it was even.

We ended up not doing the deal with them, but to answer your questions, yes, absolutely. 

25% down is pretty standard leverage for multifamily, although you can get up to 85%. If you have to max out leverage to hit your metrics it may not be that great of a deal.

In my opinion, a good deal should hit your cash on cash return metric, mine is around 7-8% in Y1, with standard leverage. Going max leverage should engineer a good deal into a screaming deal. Deciding if the high leverage is appropriate depends on the deal and your tolerance for risk. 

@Stacy D Jackson Near 36, but really closer to 50, units is where you start to realize the economies of scale for multifamily. 

The two main reasons are: 1.) Access to better financing (Fannie, Freddie, HUD). 2.) Onsite management (usually 50+ units).

@Charles Seaman Did a great summary. 

I would just stress the importance of partnerships and networking. Each project requires the appropriate team and there's no way to do it by yourself. 

I would also recommend skipping properties that do not qualify for Fannie/Freddie debt and are at least 36 units. If you can't afford a 36 unit deal keep networking until you have the investor base to be able to comfortably take it down. 

@Mary Lopez I recommend most investors skip multifamily properties that don't qualify for agency (Fannie/Freddie) or HUD financing.

Debt is going to make up 70%+ of your entire capital stack - it's critical to find the best loan/lender with the best terms possible. 

Why pay 5%-6% on a 20-25 year am 5 year term when you can pay 2.25%-3.5% on a 30-35 year am 10-35 year term?

I know this may not seem possible, and probably not the answer you were looking for, but it would be worth partnering with another active investor, bringing in a passive investor(s), or even waiting until you have enough capital to deploy into the right deal. 

Most investors focus on what can they buy now with their available capital instead of simply what is the best investment for their capital without limitations. 

@Mike Bianchi many Fannie and Freddie lenders will lend across the country so they don't have to be local. 

Most local and regional banks will only be able to offer you portfolio loans or possibly CMBS, neither have the best terms.

Google "Fannie Mae Freddie Mac Multifamily Loans" - many of these lenders are aggressive for new business if you are a decent sponsor/operator. 

Very cool! Looking forward to having you in Indy.

I use Somerset CPAs (office near Keystone at the Crossing). They are a pretty big firm, that can be a plus or minus depending on your preference. 

They have an entire real estate division with cost seg, audit support, etc along with your standard tax prep. 

You are going to want to look into Fannie Mae or Freddie Mac small balance loans. These are loans more than $1M and offer all of the terms you described: 30 year am, non recourse, 5-12 year terms, fixed our floating rate in the 2.9-3.3% range currently, typically with some interest only, 

You can go direct to lenders who have a market rate agency (Fannie/Freddie) license or a broker who can shop multiple lenders. 

You could also consider HUD 223(f) loans which have a 35 year am schedule, 35 year term, rates currently around 2.2%, non re-course. HUD 223(f) does some drawbacks, however, such as high pre payment penalty, REAC inspections, HUD audits, and a surplus cash-flow calculation before distributions.