Multi-Family
Hard Money Loans

First Capital Trust Deeds (FCTD) has helped real estate investors secure multi-family hard money loans since 2013. FCTD is a mortgage brokerage focused on hard money and private money lending, originating over 500 loans per year for real estate investors, many of whom build and invest in multi-family real estate. In our experience, hard money loans can prove a valuable lending option for investment opportunities that don’t qualify for traditional lending, or must be acted on quickly.

This article will cover everything you need to know about multi-family hard money loans, including:

• What is a multi-family hard money loan?
• Multi-family property types
• Reasons why investors use multi-family hard money loans
• Multi-family purchase loans
• Multi-family refinance loans
• Multi-family construction loans
• Pricing and terms for multi-family hard money loans
• Obtaining a multi-family hard money loan
• Exit strategy – paying off your hard money loan

What is a Multi-Family Hard Money Loan?

Multi-family hard money bridge loans can be used for many purposes, including purchasing an apartment building, refinancing an existing loan, or financing the construction of a new multi-family property. A range of multi-family properties, including 5-plus unit residential buildings, senior living facilities, and student housing have benefitted from hard money loans.

Multi-Family Property Types

The multi-family asset class encompasses the following property types:

Apartment Buildings

Apartment buildings are the most common property type of multi-family buildings. They’re abundant and attractive investments, with special government-backed loan programs discussed below under Exit Strategies.

5+ Units

FCTD has hard money and Non-QM loan programs for owners of 5-8 unit properties, the most common multi-family unit size.

Senior Living

Senior living is covered in detail on our Assisted Living Facilities page.

Student Housing

Off-campus student housing is part of the multi-family asset class, and some investors use hard money bridge lending when the need arises.

Reasons Why Investors Use Multi-Family Hard Money Loans

There are many reasons why investors use hard money lending over banks or institutional lenders. Below are a few of the most common reasons:

• The property needs renovations but doesn’t qualify for institutional financing.
• Bank financing fell through at the eleventh hour, and the buyer needs to close fast to avoid losing the earnest money deposit – or the property entirely.
• High vacancy levels that don’t meet the requirements of institutional loans.
• The loan amount is less than $500,000 and the borrower’s personal financial condition disqualifies them from obtaining bank financing.
• Some borrowers just don’t want to deal with banks because they have a long-standing relationship with their hard money lender who funds their loans quickly whenever a new opportunity arises.

Multi-Family Purchase Loans

Some investors will use hard money bridge loans if they need to close fast, or if they acquire properties with high vacancy rates or need major renovations before qualifying for institutional financing.

One example of a multi-family purchase loan was a reverse 1031 Exchange, where the investor acquired the new apartment building for $11 million before selling their existing property. There were competing offers on the apartment building, so the investor had to close quickly. The reverse 1031 allowed them to close on the exchange property prior to selling the existing property. FCTD provided a cash-out bridge loan on the existing property for the down payment funds, and a $8.5 million bridge loan to complete the purchase.

Multi-Family Refinance Loans

When investors sell multi-family properties, they may pull cash out in first or second position to upgrade and repair the property to market as turn-key. This can attract a buyer who plans to increase rents based upon the upgraded amenities.

FCTD had an apartment building owner in Ventura, California do just this. They used a hard money loan to pay off the existing bank loan and pulled $750,000 cash out to make significant upgrades to the property.

Multi-Family Construction Loans

FCTD works with many real estate investors who want to forgo all of the paperwork and underwriting scrutiny that banks and institutional lenders require, including several who build multi-family projects. These borrowers feel that the benefits of hard money, even with additional costs, outweigh bank loans. These investors like the freedom of moving quickly, which hard money allows them to do. Underwriting time takes two weeks, whereas a bank loan could take two months or more.

Pricing and Terms for Multi-Family Hard Money Loans

We have a hard money pricing guide in the blog section, which covers all the different terms, fees, closing costs, and other items we routinely see on the closing statement.

Multi-family hard money pricing will vary from loan to loan. Since FCTD is a mortgage broker with numerous funding sources (individuals, real estate offices, family offices, conduit lenders, and mortgage funds), we’re able to place borrowers with the right lender for their situation. The less complicated the loan scenario, the lower the pricing. Scenarios with more moving parts generally have higher pricing.

Below are the general pricing and terms that FCTD sees on multi-family loans:

• Loan Amounts: $300K to $30 million
• Term: 12-36 Months
• Interest Rates: 9.00% to 13.00%
• Points: 2-4 points (case-by-case)
• Other Fees: Doc prep, title, escrow, recording, etc.
• Interest-Only (I/O): I/O payments as opposed to fully amortizing
• Loan-To-Value: Up to 70% LTV
• Loan-To-Cost: Up to 85% LTC (depends on finished value and cap rate)
• Appraisals: Case-by-case/commercial appraisals cost ~$3,500
• Personal Guaranty: Most hard money loans are recourse versus non-recourse
• Credit Scores: 660+ FICO scores
• Background Check: Needs to be clean
• Closing: 7-21 days*
  *The most common delay is appraisal completion.

Obtaining a Multi-Family Hard Money Loan

Below are the required documents for obtaining a hard money bridge loan for purchase, refinance or ground-up construction.

Property Conditions

• Purchase Agreement/Purchase Contract
• Rent roll and leases
• Property financials (BS & PL)
• Appraisal
• Payoff Statement (if refinance)

Borrower Conditions

• Loan Application
• Borrower’s Authorization
• Last three months of bank statements
• Driver’s license (front and back)

Entity

• Articles of Incorporation (INC) or Articles of Organization (LLC)
• Bylaws (INC) or Operating Agreement (LLC)
• EIN from the IRS
• I go into greater detail about the required documents and conditions in this blog post.

Exit Strategy – Paying Off Your Hard Money Loan

Before you get into a hard money loan, you need to know how you’ll pay it off. Part of the underwriting and due diligence FCTD and our lenders provide is analyzing your exit strategy – making sure your timeline and numbers check out.

If you plan to use a hard money loan for cash-out to make renovations on an apartment building before listing for sale, we’ll analyze your budget and check with the general contractor or subcontractors on when they plan to begin work. The last thing we want is to write a 12-month loan when you really need 24 months to complete the renovations and sell the property. A 12-month loan would need to be extended, which can add additional costs to a borrower.

If your exit strategy is to refinance into institutional financing, FCTD will check with our institutional lending contacts to see what a new loan – most likely a Fannie Mae or Freddie Mac mortgage – would come in at.

Below are the most common long-term institutional loans FCTD borrowers use to pay off their short-term hard money loans:

• Banks and Credit Unions
• CMBS Lenders
• Debt Funds
• Fannie Mae
• Freddie Mac
• FHA
• Life Insurance Companies

CONCLUSION:

When purchasing a multi-family property, hard money loans are a tool that many investors consider and ultimately use for funding. Each real estate opportunity is different and comes with unique challenges – massive renovations, last-minute financing hiccups, difficulty finding a traditional lender, and more. Hard money loans are a crucial way to fund multi-family projects before they can be sold or refinanced. As a mortgage brokerage, FCTD works with a variety of lending sources to make acquiring multi-family units easier, faster, and flexible for our borrowers.

Connect with FCTD today to learn more about multi-family hard money loans.