ADVANTAGES OF AGENCY LOANS FOR MULTIFAMILY PROPERTIES

Posted on August 29, 2012 by louisj

Multifamily Loans

You can get the lowest rates, longer amortizations and make more money when you finance your multifamily properties through a Mortgage Banker providing CMBS Agency financing. Many investors think of going to their local community bank when they have a commercial loan, like an apartment building. The fact is that the community bank serves a valuable function in our national financial world. The local community bank knows their community and they develop programs to fit the need of the communities. As such they learn to be flexible in some areas of underwriting that present minimal risks in their communities and to be more stringent in areas of greater risk. This can be both good and bad. On the positive side the banks provide loans in there market that may not be done in other markets (sometimes in the same city). Negatively, like all mortgage lending only square pegs can go into square holes. If the need does not fit there is no loan. This is typically not a problem for multifamily properties with five or more units. The underwriting criteria is pretty uniform nationally. The big problem is resources. Local financial institutions have limited resources. In many areas there are apartment complexes yet the local lenders can not afford to finance them.  Even many of the smaller complexes ranging in one to ten million dollars in value can not be financed because a small  institution just do not have the resources to make these loans. The solution is a secondary market for commercial backed securities, specifically multifamily properties.

The Secondary Market

There are two ways that a secondary market for commercial mortgage backed securities (CBMS) are created. Large financial institutions like big banks, insurance and investment companies create, package and market CBMS on wall street. These programs are created to provide liquidity to the local banks and mortgage bankers, otherwise when they make a loan and lend out all of their money they can no longer originate new loans to create new income and the economy stops. The second way commercial mortgage backed securities are created is through the federally backed agencies of FNMA, FHLMC and to some extent FHA. Fannie Mae and Freddie Mac actually create “conventional guidelines”, purchase loans, and sell them on the secondary market. This provides liquidity to America’s Commercial Real Estate and Banking Industries. Otherwise, if a bank had $100 hundred million dollars to lend, once they made one $1 million dollar loans they would be out of business until those loans were repaid.  If it was a community bank, they could not finance the $1 million dollar apartments in their communities because they may only have $10 million dollars to lend.

Advantages of Agency Loans for Multifamily Properties

Without going into much detail I will list the advantages to a commercial real estate investor to get an apartment loan based on agency guidelines.

  • Lower Rates                                        Greater Cash Flow
  • Longer Amortizations                        Greater Cash Flow
  • Less Need to Refinance                     Greater Cash Flow, Less Hassle
  • Non Recourse                                      Limit Personal Liability

These are just a few reasons savvy Real Estate Investors choose to invest in multifamily properties and get financed through a lender that provides agency financing versus local community bank financing (that often does not exist).

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New Blanket Commercial and Residential Investor Mortgage

Posted on February 10, 2012 by louisj

New Mortgage

Actually this is not a new program, but over the last 3 years many similar programs have been discontinued. Today private investors, hedge funds and bridge lenders have begun to offer programs similar to those that were available before the recent financial crisis. One such program available today is the Blanket Mortgage for Commercial or Residential Investor properties. The unique features to this financing option is that it is based on the value and cash flow of the property, not on the credit of the investor.

Commercial Mortgage Loan Size

Most lenders have minimum financing criteria. Generally speaking higher minimum loans are attached to the best rates and terms. This is sad because it locks out a lot of small investors and people buying investments in markets where the average loan size are smaller. It is not uncommon for  the note to be at least two million dollars. But there is a market that specializes in small cap financing (smaller loan amounts). These small cap programs have much higher rates to go with the lower loan sizes. These new (retread) blanket commercial programs offer lower rates and more flexible terms. Though still higher than conventional rates, they are much lower than small cap and hard money programs. For the Blanket Mortgage, the minimum funded amount is two hundred and fifty thousand dollars ($250,000) with no maximum loan size.

Residential Investor Loans

Residential Investor financing is the hardest hit in the banking meltdown. It is exciting news that private lenders are back in the market to fund investor properties based primarily on the value and cash flow of the subject property. For residential property owners with multiple properties they will not be hampered by the conventional guidelines that only allow for four residential loans, and the credit criteria is lowered while the emphasis is on the income and value of the collateral.

Blanket Mortgage

Whether single family, two to four units, multi-family, mixed use, single use, or industrial properties the blanket program will allow you to put like properties in the same area into one loan. This has many benefits to the owner. The benefits include:

  • Larger Financing Sizes: By increase the loan size by adding multiple properties the owner can qualify where they could not and may even get lower rates.
  • Mortgage Qualifying: Smaller balances often do not qualify for financing.
  • Lower Credit Score Requirements: Conventional and bank programs require higher credit scores and tougher credit criteria.
  • Fewer Total Loans: a blanket mortgage will cover two or more properties allowing for lower total cost and fewer note payments to monitor.
  • Make Conventional Programs Available: Once the financing is consolidated under one loan this may open opportunities for conventional residential financing.
  • Reduced Total Fees: Fewer loans equal fewer fees.
  • Reduced Rates: The rates are much lower than hard money and bridge loans.
  • Flexible Terms: The program offers short and long term options as well as fixed and adjustable plans with flexible amortizations.
Finally
If you are a Real Estate Investor with multiple properties a blanket mortgage may be the program for you to help you qualify for commercial or residential financing while reducing fees and costs as you grow and sustain your business.
UPDATE 7/2012
THIS LOAN ONLY AVAILABLE IN THE CHICAGO ILLINOIS AREA

 

 

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Proof of Funds for Commercial Real Estate Investors

Posted on February 18, 2011 by louisj

Creative Financing

When a Commercial Real Estate Investor is looking to purchase income producing property utilizing any number of creative financing methods, one of the most important keys to their success is that their ability to provide adequate, verifiable proof of funds – P.O.F.- to both the seller and the lender. The verification of funds can enhance the investors credibility with the seller as well as satisfy the lenders requirement to know that the borrower has necessary funds to complete their transaction.

Proof of Funds

There are a few ways acceptable to lenders and sellers to show P.O.F. to close your Commercial Real Estate transaction:

  • Bank Statements or Bank Verification
  • Brokerage Account Statements or Verification
  • Escrow Account Verification

“Bank Verification” This is the most acceptable and widely used method to confirm the investors can complete the proposed deal. As such money must be put into a bank account and confirmed by statements or letter from the banker.  This is a “hard” (versus soft) method of verification, because money are deposited in an account in the buyers name to serve as proof the buyer can complete the transaction.

“Brokerage Account Verification” Similar to bank accounts, brokerage accounts show acceptable means to complete a purchase transaction. Likewise, statements or letter from the brokerage house representative will meet the requirement to prove adequate financial strength. This is also a “hard”  method.

“Escrow Account Verification” This is the one method that can be hard or soft evidence of necessary assets as the escrow agent simply needs to write a letter of confirmation attesting that the borrower has finances available to complete the transaction. It becomes hard when money is transferred  into an escrow waiting for the closing.

Companies

Finally, there are companies whose sole purpose is to provide evidence of the financial ability of Commercial Real Estate Investors to complete their transactions. Many of them provide “Proof of Funds” and Transactional Financing. P.O.F. is necessary at the beginning of the deal and Transactional Financing is for the day of closing only. Both of these methods are a necessary part of an investors arsenal when utilizing creative financing.

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Posted in Creative Financing, Down Payment Assistance, Real Estate Investing | Tagged , , , | 9 Comments