Multi-Family Financing

Multi-Family Financing is one of the more popular types of Financing Programs in the Commercial Financing market. With many Commercial Real Estate Investors in the market, most tend to focus on Multi-Family and Apartment properties.

And for good reason.

Multi-Family properties provide for a solid investment. Done properly, a Multi-Family property can provide you with monthly income as well as long term growth of equity and appreciation.

If you're new to Commercial Real Estate investing, Multi-Family property is a great place to start.

Keep in mind that there are several variations of Multi-Family Financing Programs. For example, there is a Multi-Family Financing Program for new construction, another for refinancing and there are additional variations based on the different Lenders offering Multi-Family financing.

So what's most important about Multi-Family properties, as far as the lenders are concerned? The number one item Lenders look for with Multi-Family property is the cash flow. So, the Debt Service Coverage Ratio (DSCR) is going to be crucial.

For those new to Commercial Real Estate Financing, when it comes to DSCR just think of subtracting the financing costs of the property from the income, and how much money is left over. For an example of DSCR read the What is Different About Commercial Real Estate Financing? page. On that page I give you a better explanation.

Okay, moving on. As a general rule, you can use a DSCR of 1.20 for Multi-Family properties. There are exceptions to this rule of course. I can think of one Lender who would go as low as .95 DSCR, but that is a rare case. And, with the market changing all of the time it is unlikely that Lender continues to offer that DSCR.

Just use the 1.20 DSCR as a general rule to be safe.

I want to point out something that I think is important for you to know about Multi-Family interest rates. As I talk about often in my Commercial Mortgage Tips, and on this website, rates are a completely different animal in Commercial Mortgage Financing.

Even with that said, I am going to throw you another curve ball when it comes to me. Because I am aligned with what I think is now the largest Commercial Mortgage Brokerage in the United States, I get special perks.

And these perks are not just for me. They are really your perks. Le me tell you about just a couple of those perks.

One of those important perks is my team. I have a member of my team, Rachel, who has a tremendous amount of Commercial Banking and Underwriting experience. Specifically, she has a great deal of experience with Multi-Family Financing.

And, one of the thins she was able to do for us as we have grown is to get us "Correspondent Lender" status with many of the Lenders from around the Country. In some cases she has managed to help us achieve "Master Correspondent lender" status with some of those same Lenders.

I know that may not sound very sexy or exciting to you, BUT it has the potential of making your Commercial Real Estate Financing a huge success!

Let me explain. As a Correspondent lender, or Master Correspondent Lender we get the absolute best pricing from the Lender. I am confident in telling you that pretty much nobody else can get better pricing.

In some cases, it can also mean you will NOT be charged an up front Origination fee from the Lender. That can be a savings of 1% - 1 1/2 % of your loan amount. To give you an example in dollars, say you had a loan amount of $1,000,000. That would save you $10,000 - $15,000.

Just to clarify, this is not a hard and fast rule. As I said, it has the potential of saving you that money. I think that's pretty cool.

I will make the point again, this is why it is important for you to know who you chose to work with. In the Commercial Real Estate Financing arena, there are usually BIG differences between your local Bank, a Residential Mortgage Broker who occasionally does a Commercial deal, and even between one Commercial Mortgage Broker and another.

If you are looking at buying or refinancing a Multi-Family Property you need to know what we, or the Lender is will need in order to qualify your deal.

And keep in mind if you are buying a Multi-Family Property you MUST have this information yourself in order to know if you have a deal worth pursuing.

Too often I see Investors put down a large deposit on a Commercial Property, in this case a Multi-Family Property, before they know if they have a viable deal. And then they wait too long to talk to someone about the financing, and now you have a recipe for disaster!

You ALWAYS want to do your due diligence BEFORE you lock yourself into a large deposit you can't get back.

Okay, so here's what we will need. And what you will need if you are looking at buying a Multi-Family property.

• 2 Years Operating Expense Statement, PLUS the Year To Date. This must be signed and dated within the last 60 days as being true and accurate. If you are buying a Multi-Family Property this will be signed by the Seller. If YOU are refinancing the property it must be signed by YOU.
• Current Certified Rent Roll.

A Current Certified Rent Roll must include the following:

• Tenant name
• Unit number
• Rent amount
• Bedroom/bathroom count
• Are any Units furnished?
• Are any Units backed by Section 8?

This should be the bare minimum YOU need in order to evaluate a property you are considering buying.

Of course we will need this, plus additional documentation so we can evaluate the deal. For example, we will need a Personal Financial Statement from you, along with a completed Loan Application. These must also be signed and dated within the last 60 days.

Additionally, we will need to pull your credit history as part of our evaluation. The evaluation process will include looking for certain things from the you, the Borrower.

Those certain things include:

• Cash to close or liquidity
• Reserves - or assets
• Credit history - dated recently - ideally for the best rates and pricing they like to see a 660 or higher FICO score. It doesn't mean you won't get financed if your score is below 660. It simply means you will not get the better pricing and rates.
• Related experience owning and managing real estate

Typically the Lender will want to see a brief resume from the Borrower. Not anything extravagant. In some cases it can be handwritten. They just want to see what you have done and what your experience level is.

Once you have the 3 Years and Year To Date of Financial Statements/Operating Statements, along with the Certified Rent Roll, you will need to put some additional paperwork together for me so I can evaluate the Property and give you Financing information.

Here's what I need from you:

• 3 Years PLUS Year To Date Financial Statements/Operating Statements
• 3 Years Personal Tax Returns - Business Tax Returns
• Your Personal Financial Statement
• And I will have to have your authorization to pull a tri-merge credit history
• Loan Application
• Brief Resume - remember, this does not have to be a professionally prepared resume. Use the KISS formula

I have 4 separate Multi-Family Program Flyers to share with you. Each Multi-Family Program Flyer covers a specific scenario.

You will find the Program Flyers are in PDF format. If you happen to be the one person left that does not have the free Adobe Acrobat Reader, you will need to go to the adobe website here and download it first, then come back to download and read these Flyers.

Here is the first: This covers Multi-Family Acquisitions & Refinances. Take a look.

Multi-Family_Acquisition_Refi.pdf 

Here is the next: This is a generic Multi-Family Program Flyer, which covers a wide range of Multi-Family Financing

Multi-Family.pdf 

Finally, this Flyer covers Multi-Family New Construction and Substantial Rehab's.

Multi-Family_New_Construction_Rehab.pdf

These Multi-Family Program Flyers should give you a good starting place. These Flyers are not meant to be all inclusive, and as common sense dictates, due to market conditions, rates are subject to change without notice.

Keep in mind that in order for you and I to know if the Multi-Family Property you are looking it makes sense, you need to do some up front due diligence.

Remember, at a bare minimum YOU are going to need 3 Years Financial Statements or Operating Statements, plus the Year To date, and a Certified Rent Roll.

Without this you cannot properly evaluate the Property to make a buying decision. And as I say often, don't get emotionally involved and start plunking down a large down payment until you have done your due diligence.

You will find blank Forms on the Commercial Financing Forms and Applications page.

For additional information on what is needed to evaluate your Multi-Family Property take a look at the Multi_Family_Pre_Qual_080702.pdf

I usually give this to employees who are new to the commercial market, but I think it's good information for everyone as it tends to give you a nice overview.

Are you ready for your Multi-Family Financing? Have questions? What are you waiting for? Pick up the phone and call.

Call 800-553-3442 NOW For Details About Our
Multi-Family Financing