Is Multifamily still worth investing?

A pandemic can stress test your multi-family investment portfolio. The biggest worry throughout 2020 is the tenant's inability to pay rent due to massive employment disruptions. There is a view that this may cause major losses to the landlord, and may flood the market with non-performing assets, and may even lead to foreclosures.

According to the Mortgage Bankers Association (MBA), despite the economic downturn due to COVID-19, the delinquency rate for multi-family families remains low. Despite the dire warnings, we will see large-scale strikes and non-payments, but rents have also remained relatively stable. The National Multi-Family Housing Commission (NMHC) has kept a close watch on rents throughout 2020. Despite the major disruptions in the labor force, it is reported that multi-family rents have only slightly decreased compared to 2019:


Reference https://www.nmhc.org/research-insight/nmhc-rent-payment-tracker/


All this shows the resilience of the sector. Despite the huge economic headwinds brought about by the pandemic, in 2020, multi-leveraged assets have not been over-leveraged and have a strong and active tenant base. It is hoped that this flexibility will last until 2021 and will even help boost the upcoming economic recovery.

Despite the risks, there are multiple ways to finance the purchase of apartment buildings. When you start searching for commercial loans for a multi-family apartment complex, you may have several options.

It is good to have multiple loan options. This means you don't have to be satisfied with the first offer found. Instead, you can take the time to find the best offer for your situation.

Below are three common types of multi-family apartment loans. We’ve broken down each feature to help you compare options.

Fannie Mae / Freddie Mac Apartment Loans

Both Fannie Mae/Freddie Mac's multi-family platform has a number of loan programs that may help investors in search of affordable apartment loans. You can borrow up to $1 million in loans with a maximum loan term of 10 years and a repayment period of 30 years.

Fannie Mae/Freddie Mac’s multi-family financing options include affordable loans, green financing, housing for seniors, etc.

Usually, a down payment of 20% or more is required to borrow money. Because the federal government supports loans, they pose less risk to lenders. Therefore, compared with other financing methods, interest rates are often competitive. However, you should always shop around to ensure that you get the best prices and terms.

Bank Balance Sheet Apartment Loans

Bank balance sheet apartment loans are another type of commercial financing you can use to purchase an apartment building. However, after the bank is closed, these loans will not be packaged and sold and sold to government-sponsored enterprises (GSE) like Fannie Mae or Freddie Mac. Instead, these loans are kept in their own house, on the bank’s balance sheet.

Many traditional banks can provide balance sheet loans, but online lenders and life insurance companies can also provide these assets. Loans are usually full recourse loans, which means that if something goes wrong, you can take personal responsibility for the debt. In other words, the lender may confiscate your personal assets to make up for the loss.

It is expected that a down payment of at least 30% will be paid for the apartment loan on the bank's balance sheet. However, depending on the lender's request, you may need to provide more advance payment.

Such loans depend on the availability of local banks in the area. Generally, loans are only made to the property where the bank has access and sometimes driving distance. The lender only lends to a specific city and will not go beyond its immediate area. 

We have been arranging these loans for 5 years fixed around 3.875%.over 25 to 30-year amortization. 

The underwriting requirements might be 3 to 12-month rent proof. The borrower must provide 3 month bank statement to source the down payment. The bank will require to collect 3 year personal tax return. And for refinancing, the property profitability must be able to reconcile back to the property tax return. 

More detail https://www.essencap.com/post/benefit-in-commercial-real-estate-investment

Private Sector Apartment Loans. 

Not all investors purchase apartment buildings in the most desirable area. There is a geography limitation from a bank lending perspective. And with Fannie Mae / Freddie Mac apartment loan has a minimum dollar of 1 million. Additionally, both types of lenders might pick and choose borrower experience, net worth, liquidity, and property condition. 

From a private sector point of view, the lender is more flexible with checking rent collection, sourcing the down payment. Generally speaking, third party professional management can overcome investment management experience, if this is the investor first-time investment property purchase

Essencap is a direct lender in Apartment Building lending. Our rate is around 5.15% interest only for 5 years fixed with a 30-year loan term. Rent proof is not required, except validation of lease. Third-party professional management is acceptable when comes to a first-time investor. We typically close our loan process within 3 to 4 weeks. We do not require tax returns and minimum documentation.