Multi-family loans can be a very astute business decision for many entrepreneurs. Whether you are in the position to purchase an existing multi-family business, renovate or upgrade a property or embark on construction, many lenders are willing to extend credit to qualified buyers.
Lenders’ Favorites: What are they Looking for in a Multi-Family Property?
• $6-$9 Million Dollar Sweet Spot: Although lenders will consider loans of various sizes, loans in this range are very popular. First of all, these loans have the lowest interest rates right now. Second of all, they are large enough to bring in sufficient income and to justify the bank’s underwriting time. But they are below the CMBS threshold, which simplifies the approval process.
• High occupancy: Current multi-family buildings with nearly full occupancy as well as a manageable turnover are attractive to lenders. However, if this has not been the case in the past, a prospective buyer can demonstrate a management plan to fix any previous problems with a detailed plan to make improvements. Creating a three year financial projection can bolster a borrower’s case. GRP Capital is adept at helping to create these documents in consultation with our clients.
• High Local Demand: Multi-family demand is typically high in large urban areas. However, the increased national demand is now taking root in secondary markets and suburban areas, too. Demonstrating the local demand for multi-family housing is a critical component of our communication with potential lenders.
Why are Multi-Family Loans Great Opportunities?
• High Demand: The National Apartment Association recently reported that the U.S. needs about 4.6 million new multifamily units by 2030 to keep up with demand. On a yearly basis, that comes out to about 328,000 new units annually over the next 10 years. This explains continued upward NOI in many markets, where rents are continuing to rise.
• More renters: Millennials are contributing to increased multi-family housing demand. Their high student debt combined with high home purchase prices make renting more attractive than home ownership. In addition, millennials are interested in more dense housing options featuring downtowns, walkable distances to restaurants and entertainment and a decreased need for automobiles.
• Low Interest Rates: Historically low interest rates are a great incentive for business loans in general. The Fed has indicated their interest in maintaining low rates in order to incentivize borrowing and investment. Wise business owners can take advantage of these low rates.
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