A 7-Year Multifamily Win Strategy – An Equity Capital Opportunity

Today and over the next three to four years, equity capital will have an unprecedented opportunity to buy undervalued multifamily properties at significant discounts. That opportunity is only reasonably accessed by using equity and avoiding leverage entirely or nearly entirely as financing risks will remain pronounced for the foreseeable future.

Why is this an unprecedented opportunity? What is new now that hasn’t existed in the past?

First, the commercial markets in general are over leveraged. At the same time, because of the financial crisis has driven capitalization rates up from lows in major markets of 4% — 6% to new rates of 8.5% or even 9% on an appraisal basis. On a buyers’ basis this is even low for distressed assets. Because of this owners find themselves seeking financing on properties that have lost 10s of percentages points of value. At the same time, banks, agencies, and other lending sources have lowered the leverage potential from 80% or even 85% to 50% to 70%. The collision of these factors has created a flood of REO properties.

Now, as a result, the equity buyer can achieve a cash on cash in real terms of 10% or greater buying properties and 15% or greater purchasing notes. This return is based on actual income results. With proper due diligence and a strong management capability, these opportunities can return 20% to 30% when brought to full performance in many cases as weak recent demand has lowered the actual income value potential.

SBA Mortgages – Quirks

With any government entity there are often agendas that are either political or out of touch with reality. Probably the biggest issue here is just the overall process of getting an SBA loan closed and the complex set of rules and guidelines that banks and lender have to follow in order to ensure that they will get the SBA guarantee.

For example the typical SBA loan takes 75 -90 days to close. Conventional loans normally take 60 – 75 days to close. The forms and procedures for both the bank and the borrower are much less cumbersome on conventional loans and there is more flexibility with getting exceptions on non SBA loans as wells.

However, it is important to point out that the SBA has done much in the last 3 -5 years to make the system more efficient and seamless. For example they cut the SOP (the Standard Operating Procedural Book down from 800 pages to 300 to help underwriters grasp the rules easier).

It is also very important for borrower to only work with very experienced firms in the SBA field. The last thing you want to do is go with a bank that has only done a few SBA mortgages as they will likely add an additional 60 to 90 on top of the typical 75 day process. So business owners should do their shopping as well as make sure that their timing restraints make the realities of the closing process.

SBA Mortgages – Issue with the SBA 7a Loan

One of the main complaints to the classic SBA 7a loan is that the rate normally adjusts on a monthly or quarterly basis, against the fluctuations of either the Prime Rate or LIBOR. Entrepreneurs are often concerned about the uncertainty of what their monthly payments maybe in a few years and often find it difficult to plan due to this.

The reason for the set up is to encourage banks to lend on transactions that they normally would not consider. For example, SBA mortgages often provide 90% financing. No bank would do this without the government guarantee. Further the adjusting rates helps the bank as their costs of funds fluctuate with the market as well. So they are concern about offering fixed rates to borrowers that may hurt them in the future.

Another thing to keep in mind here is that there are a few banks that will structure the SBA 7a loan with a 3 to 5 year fixed rate. As of this writing, we know of 2 in the nation… It is very rare, but it is out there.

Take time to explore the place and look for a perfect place that will suit your business. you can also ask a real estate agent to help you out in looking for a Florida commercial real estate that has a lot of benefits to offer in starting a business. Typically, commercial buildings on Florida are really perfect to start a business; it is just a matter of what kind of business you will enter and on how you will market your product or services

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The government’s Making Home Affordable Mortgage Refinance program
Mortgage refinance or new home loan
Home Buyer EDUCATION