There are several ways to increase the value of your multifamily apartment property. Often, the most viable way to accomplish this goal is by refinancing. You can then use the equity to make capital improvements such as upgrading the landscaping, exterior and interior of apartment units.
Advantages to Refinancing
It’s a great time to consider refinancing as interest rates are currently very favorable. Refinancing is a great way to increase cash flow to the property by:
- Reducing the interest rate.
- Extending the current loan term.
- Decreasing the principal and interest payments on the project.
Fannie Mae and Freddie Mac Loans
Fannie Mae and Freddie Mac offer multifamily loans that can be used for the following:
- Capital improvements.
- Distributing capital to investors.
- Adding to your portfolio by using the equity to purchase additional properties.
Both Fannie Mae and Freddie Mac multifamily loan programs allow terms of 5-30 years with a maximum loan to value of 80%. They both offer fixed and variable interest rate options, and the minimum debt service coverage is 1.25%, in most cases.
The majority of banks offer recourse loans, making the borrower personally liable in the event of a default. Fannie Mae and Freddie Mac offer non-recourse loans with standard carve-out provisions.
Information You Need Before You Refinance
There are several factors to consider, and certain important pieces of information to gather, before refinancing a multifamily apartment project.
- The borrower needs to determine the current equity available in the project. This can be calculated by taking the outstanding principal debt and deducting by the estimated value of the project.
- If refinancing early, it is important to know the current loan rate and terms, as well as the current debt service and pre-payment terms.
- The best loans for borrowers are non-recourse with standard carve-out provisions.
Learn More about Refinancing Your Multifamily Project
In order to receive the most accurate quote and expedite your request, you will need to be able to provide your lender with the following items:
- The current rent roll
- The trailing 12-month income statement, along with a month by month P&L.
- The last 3 years P&L’s.
- A copy of the original mortgage note.
- Any current mortgage statement that reflects the current escrow for repairs and replacements.
Contact LSG Lending Advisors today to learn more about whether refinancing your multifamily apartment project is right for you. We’ll help you secure the loan you need.