Author: cl@rityTr

Investor Tips

Qualifying for a Loan – In general, if you are going to apply for a loan for a multifamily property, there are a couple of requirements that most Lenders will look for:

  1. Your net worth must be at least equal to the loan amount you are seeking.
  2. You must have at least 10% of the loan amount in readily-available funds (post-closing liquidity) to cover any shortgages in cash flow or unanticipated expenses.
  3. You must have prior multifamily experience.

If the above criteria cannot be met, there are things that can be done. The biggest is to partner with a Key Principal (KP). A Key Principal is usually a high net worth individual or individuals that can put up their balance sheet to help you meet the net worth and liquidity AND the experience requirements. Obviously, if you do not qualify for financing on your own, a Key Principal is essential and you must find such a person way before you need him or her. To see how a Lender will look at your net worth, download and complete our personal financial statement (PFS). We would be happy to review it with you to determine for what size loan you may qualify.

Joke Du’ Jour

Two pirates, Morty and Sol, meet in a bar. Sol has a patch over one eye, a hook for a hand, and a wooden peg leg. “Ye gads, matey,” says Morty. “What happened to ya?” Sol says, “Me pirate ship was attacked, and a lucky shot lopped off me leg. So now I got me a wooden peg.” “And yer hand?” asks Morty. “When me ship sank, a shark bit me hand off. So now I got me a hook.” “OK, but what’s with the eye patch?”“I was standin’ on a dock, and the biggest seagull I ever saw poops right in me eye.” “But ya don’t go blind from no seagull poop.”“True,” says Sol. “But it was me first day with the hook.”


Is Now the Time?

We are beginning to see some repricing of multifamily assets in the Texas markets that we follow. Over the past two weeks we’ve seen two assets selling for the loan balance which means the seller is really taking a hit to equity. The two assets were both on short-term bridge loans and just ran out of time. Maybe you would not consider these classically “distressed” deals but the sellers had other problems in their portfolio and had to move on the properties. In the Texas markets, we are seeing over $15 billion or 800 properties (of 50+ units) with loan maturities prior to the end of 2024. Of these 800, 36% were originated in the 2020/2021 time period during a period of rapid price appreciation. We expect to see more stories of Sellers leaving equity on the table to exit assets. We think that focusing on deals with near-term maturities, especially if originated at peak pricing, will be the place to find relative bargains.

How Bad (or Good) Can it Get?

Apartment construction brought 1.2 million new apartments to the market since 2020 and expectations are for another million units to be constructed by the end of 2025. New York, Dallas and Austin are the growth leaders. New construction is expected to slow down in 2025 as current interest rates and bank’s reluctance to lend will slow new construction starts. What does this mean? There will be new projects with lease-up concessions competing with existing apartment stock. An investor purchasing a new project needs to be very careful with rent increase projections. Rent growth is already slowing but a new project in your neighborhood can draw away residents and decrease rents until the new complex is absorbed in the market. The good news? Even with new project completions, the US remains with a housing deficit. Also, the rent battles in the Class A market may spill-over somewhat to the B and C markets, but the new construction will not have a major impact on workforce housing. Those investors buying B and C projects know very well that “they just aren’t making any more B and C apartments”.

We own apartments and understand the needs of the apartment investor and what it takes to grow wealth.

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