LTC & LTV in Multi-Family – Your Lender’s Perspective

Regardless of whether you are doing new multi-family development, or Value-Add rehab projects, Understanding how your lender looks at Loan to Cost and Loan to Value ratios is critical to understanding and mitigating your risks in any multi-family deal that involves construction.

Having served on the Board of Directors and loan committee for a Chicago community bank that specialized in commercial real estate and construction lending from 2005 through 2010, I not only experienced the 2008 “Great Recession” first hand in my own development business, but had extensive experiencing helping our borrowers work their deals out.

Many of the bigger developers that came through that time in the market have now become very successful and are semi-retired. A lot of the smaller developers (and lenders) are not around today.

The vast majority of people doing these deals today did not have the benefit of experiencing the drop in values that came with the Great Recession.

This video can help you to understand. It’s all about values and capitalization!

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Don’t Buy Multi-Family! BUILD IT

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Multi-Family Risk Factors – Your Lender’s Perspective

Most of us would like to avoid Risk, but lenders and professional investors, know that understanding risk is actually their path to long term success.

It’s important for all multi-family investors to understand the lender’s perspective because when you have a commercial mortgage / construction loan, your lender ultimately has a great deal of control.

Multi-family income property is an great way to build wealth and right now, it’s the perfect way to hedge against inflation, but most of us do understand that you just you don’t make money without risk, right?

Now if you’ve been out looking for multi-family investment properties to buy, you’ve probably found that any property in good condition, in a good area with good cash flow will cost so much that you won’t be able to make very much money on it.

If you want higher returns (which most investors do), you need to find properties that are underperforming and can be renovated and re-positioned to increase their income, these are what they call “Value Add” deals.

Likewise, Developing new construction multi-family is like the ultimate value-add deal because it is 100% new. These properties attract the best tenants and generally get the highest rents for the area. When executed properly, they can also create the highest returns.

Having been on the Board of Directors and the loan committee for a Chicago community bank specialized in real estate lending from 2005 – 2010, I want to talk about the risk factors involved in multi-family deals that involve new construction and/or renovation.

The fact is that, assuming the principals know what they are doing, the vast majority of Value Add or New Construction deals are going to be quite successful and profitable, but once in a while, they can and will run into troubles.

If you do 10 deals and 7 are very profitable, you may have one or two that are only so so and you may also have one or two that get caught in a bad market period.

To mitigate risk, we want to consider what can happen if things don’t go according to the original plan and have some contingency plans in place.

Once they are completed, leased up and stabilized, these projects will have all the same risk factors as any other stabilized properties you might purchase. Less actually because they will be new or newly renovated.

Of course the income numbers projected in their loan application rely on renovation / construction being completed before they can be leased at these higher rents.

This means that they will be subject to additional construction related risk factors. These risks are what we discuss here and in the next video where I’ll discuss why you need to understand the lender’s perspective on Loan to Cost and Loan to Value ratios and how they affect you.

✅ Watch NEXT VIDEO – Loan to Cost & Loan to Value: https://youtu.be/lap9Jy0-KCY

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Multi-Family Best Hedge Against Inflation?

I just heard Elon Musk telling a group of his investors that now is a good time for them to invest in real property as a hedge against inflation.

In other words, Elon is talking about using their capital to expand or make improvements to their manufacturing facilities by adding new land, buildings and/or machinery.

Inflationary times normally signal a rough patch for stocks. It makes sense to put your capital into real property because your cash becomes worth less, while real property generally increases in value along with inflation.

For individuals investors, multi-family income properties are by far one of the most reliable and profitable ways to hedge against inflation.

Not only will multi-family investment property normally increase in value along with inflation, but you can also earn great returns which include:

Appreciation: Aside from increases in value due to inflation, we normally see 3-5% appreciation compounding every year.

Leverage: Your investment capital is leveraged by borrowing at historically low rates

Passive Income: (in a desirable property, rents tend to escalate year by year, but rents also tend to increase with inflation )

Loan Principal Reduction: Your tenants are paying down your debt every year which is money in your pocket.

Tax advantages:

1. Depreciation Deduction (in addition to operating expenses). 2. Lower capital gains rates on sale. (can often be deferred and rolled forward into another investment using a 1031 exchange).

All of these add up to make your “hedge” a great investment for you to build wealth, but If you’ve listened to me before, you know that I’m always talking about the many advantages of building new multi-family investment property as opposed to buying older buildings.

To learn more, grab a copy of my new book on Amazon:

Don’t Buy a MULTI-FAMILY! BUILD IT

I’ve also included a link in the text below for a free eBook, so you can start reading right away.

You’ll want to click to the next linked VIDEO:

https://youtu.be/Hhq4RrpWRpE

To see the Equity numbers and begin to understand why building new investment property is so much more profitable than buying older buildings!

✅ Download FREE BOOK: LD2development.com

✅ Purchase New Book on Amazon: Don’t Buy Multi-Family! BUILD IT https://www.amazon.com/gp/product/B09PSFMC6Z/

✅ Amazon Author Page: https://www.amazon.com/author/rogerluri

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Invest in Multi Family Without a Tool Belt?

So you’ve decided you want to invest in multi family properties, but you don’t want to put on a tool belt and be the handyman.

That’s the whole point of my new book:

Don’t Buy Multi-Family! BUILD IT

Whether it’s an owner occupied 3 unit, or a bigger investment property, any apartment building you buy is going to need some work. If it’s in great condition, the price will be so high that you can’t make any money on it.

What people don’t realize is that they can own a brand new investment properties and get great returns by building their own new construction buildings.

And you don’t need to be a contractor. In fact most developers are not. There are plenty of professionals out there who are ready to help you do it.

If you’re just starting out with a smaller owner occupied building, you’ll get yourself a great new home and an income stream to help pay down your mortgage without the headaches of owning an older building that constantly needs work.

Right now, there’s huge demand for new construction units and rents are at all time highs. That’s why you see big developers putting up high rise rental buildings just as fast as they can right now.

And that’s why you should follow their lead!

My new book:

Don’t Buy Multi-Family! BUILD IT

is a short read, but it will show you how you can get started building new multifamily properties.

Today I’m giving away a few free ebooks from the link below.

If you’ve been looking at buying older properties, Check it out.

You’ll learn a much better way invest in income properties.

Once you understand the numbers, you’ll never think of buying older properties again.

✅ Download FREE eBook: https://LD2development.com

✅ Amazon Author Page: https://www.amazon.com/author/rogerluri

______________________

✅ Let’s connect: YouTube: https://bit.ly/LD2YouTube

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Multi-Family Syndicator’s Secret for Great Returns

So what is the multi-family syndicator’s secret to great returns?

Well, any multi family property you buy is going to need some work. If it’s in great condition, the price will be so high that you can’t make any money on it.

If you can buy it at a good price, it’s because it needs work to bring the rents up. So you’ll need to do some big renovations before you see any returns.

This strategy is what multi-family Investors call: ‘Value Add” and this is how most of the successful syndicators make money on their multi-family investments.

The trick is that when you do a substantial renovation, you’re making a profit on the improvements that you’ve made to your new property, in other words on the construction that you’ll be doing to fix it up.

That construction is how you bring the rental income of your new property up.

But your profit shows up not only as higher income, but also as a bump up in your equity as soon as construction is complete and the income stream is stabilized.

In other words, if you’ve done it right, the property is now worth much more than the total of your acquisition cost and improvements and that’s because of the value of the work that you put into it, right?

What most people don’t realize is that building new construction income property is the Ultimate “Value Add” strategy.

Because the entire property is new, you’re maxing out the amount of improvements and you are also maxing out the income because new construction units always command top rents.

So by building a new construction building, you’re maximizing this bump up in equity that you get as soon as your property is completed and the rental income is stabilized.

On top of that, Brand new units attract the best tenants and rent quickly for top rents. Right now, there’s huge demand for new construction units and rents are at all time highs.

This is why you see big developers putting up high rises and big multi-family buildings just as fast as they can right now and that’s why you should follow their lead!

My new book:

Don’t Buy Multi-Family! BUILD IT

is on Amazon now, but if you’re watching this, there is a link in the text below to get a Free eBook Download.

It’s a short read, but it will show you how you can get started building and owning brand new income properties.

✅ Download Free Ebook: https://LD2development.com

✅ Amazon Author Page: https://www.amazon.com/author/rogerluri

______________________

✅ Let’s connect:

YouTube: https://bit.ly/LD2YouTube

Linkedin: https://www.linkedin.com/company/ld2-development/

Facebook: https://www.facebook.com/LD2Development/

Instagram: https://www.instagram.com/ld2development/

Build Investment Property Yourself?!

A lot of investors are searching now for good multi-family investment properties to purchase, but not having much success finding them.

In my new book, Don’t Buy Multi-Family! BUILD IT I talk about the advantages that multi family investors can get by building new construction properties rather than buying older properties and fixing them up.

But I think a lot of people might think that they need to be an architect or contractor to build a new multi-family property.

If you’re already investing in multi-family buildings (big or small), you’re probably working harder than you have to for smaller returns.

And It’s just not as big a jump as you think to start building your own new construction properties.

In fact the majority of big developers hire outside architects to design their buildings and they hire general contractors to build them. That’s what you should do too.

So let’s take a quick look at how it works. When a new building is developed, the expenses include Soft Costs: Like financing costs, permits and architectural design, things like that.

And Hard Costs: Which include all the labor and materials to build the property. hard costs also includes the General Contractors fee.

The owner who puts up the money and hires the people necessary to build it, is actually the developer who gets the benefit of the investment. (they get the profits).

Now they may choose to hire everyone and manage the whole development process themselves, or they might partner with an experienced developer so they have someone else to manage the whole process for them, or they could even hire a developer on a fee basis manage their project for them.

The point is that the owner/developer makes money because the property she/he is building is worth more when completed, leased up and stabilized than their cost to build it.

It’s no different than when you buy a car or clothing or anything else; The finished value (what you pay for it) is going to be substantially more than the cost to build it. This is how the company makes money.

I talked in my prior videos about this “Equity Bump”. that a new property enjoys when it’s completed and stabilized (leased and operating). This is the real game changer when you compare numbers for purchasing an existing building to building a new building.

What’s really surprising is when you see how quickly this “Equity Bump” combined with cash flow and appreciation will multiply your initial equity investment in just the first few years of operation.

So whether you’re investing in a few units or hundreds, You should definitely learn more about developing new properties,

The first step:

✅ Get New Book on Amazon:

Don’t Buy Multi-Family! BUILD IT https://www.amazon.com/gp/product/B09PSFMC6Z/