Are your loan terms protecting your lender, or costing you unnecessarily? Navigating the fine points of a loan agreement can be daunting. Experience and resources make all the difference.
There is a perception that financing for apartment deals is hard to find. Quite the opposite is true. There is plenty of financing cash available, it just may not be as investor-friendly as you might like. You have to appreciate that lenders will always seek the highest and best use for their available funds and will insist on returns commensurate with the level of risk they perceive. The less risk a lender perceives the “friendlier” they become. Many factors affect risk; the condition and location of the asset, the vagaries of the market, the experience and care of the management, the soundness of the business plan, and even how much wiggle room and backup are available.
If you and your lender do not agree on the level of risk your deal involves or how this risk should be managed and translated into a contract you might call that money “hard”. Whatever you call it, you do have choices – don’t do the deal, accept the terms, or find another lender. Once you agree, be prepared to live up to your end, or face the consequences.
At The Better World Companies, we have seen seasoned investors school lenders with lesser experience. The terms they obligate themselves to end up quite reasonable and rarely need to be discussed again. We are also aware of abusive lenders who prey on those less sophisticated. One recently proved their ineptitude by requiring investors to waste money on earthquake insurance for properties in Houston where no such event has ever been recorded. This one is also known to include fine print that virtually ensures penalties will be assessed by narrowing the monthly payment window to just a few days. Pay one day later than the first and you pay a hefty penalty. If the first falls on a weekend, payment is must be made early. But, pay too soon and pre-payment penalties apply. When a lender is proud of their ability to use convoluted terms to extract tens of thousands in additional fees before any normal lender would have even required the very first payment, beware! In the end, such usury can ruin an otherwise sound deal.
A great deal of apartment financing is originated by independent brokers and backed by private funds whose activities are loosely, if not almost entirely, unregulated. The American legal and financial system blesses us with “freedom of contract”. This means people have the right to negotiate and bind themselves to transaction terms of their own choosing. There is very little out there that is enforceable as “unconscionable”. This freedom greatly enhances your chances of successfully structuring and closing a loan to fund your apartment project. The bad news is, if you are not careful, you can sign your life away and be tethered to a terrible deal.
It’s a lot to wade through for an apartment investor looking for funds. It can be incredibly difficult under the best of circumstances to decipher all the terms and choose the best financing option for your particular deal. Pile on time pressures, lack of specialized expertise, or minimal experience and the opportunities for mistakes and abuse multiply exponentially.
Growing your multifamily portfolio successfully requires sound financing. Properly managing financial contracts throughout the apartment lifecycle can add to your bottom line in a very big way. Well prepared and supported investors have a decidedly favorable advantage when negotiating with lenders. Without such preparation, the loan process can be tedious and often more expensive than necessary. Knowing what to look for and more importantly, what to look out for is golden.
At the Better World Family of Companies, we help our owner-clients and investors escape the money trap and secure the funds they need for their multifamily projects under the best possible terms.
How Better World Improves Terms
We locate, evaluate and qualify loan professionals for every level of need. Because we have been doing it for decades, we know what to look for, what to avoid and what is reasonable. Because this is a value-add service for our clients, we have no fee generation incentive to promote one direction over another. Mortgage agents, loan brokers and attorneys are not all the same. Loan terms reflect a lender’s assessment of the multifamily transaction and the borrower’s representatives. Affiliation with an established, experienced team of multifamily real estate professionals like those found at the Better World Family of Companies adds to the confidence and stability lenders seek when evaluating risks and translating these into terms. Better World Holdings LLC builds reliable underwriting models and financial budgets that lenders appreciate. Better World Properties LLC executes operating plans and provides licensed management services that ensure agreed goals and terms are met. All this helps minimize risks to ensure a win-win deal for both investors and lenders.
Our experienced staff has closed in excess of $500M in transactions. For our clients, we facilitate multifamily deal formation, apartment financing solutions, multifamily debt restructuring, real estate entity formation, and apartment bridge loan placement throughout the United States. We have saved clients time and money by knowing where to go and what to look for. Click here to read more about the Better World Family of Company’s services including Better World Holdings LLC.
Are you ready to extract cash, refinance or take your apartment portfolio to the next level? Would you like assistance with acquisition or disposition strategies? Give us a call. Better yet, come visit. We love to talk apartments.