Eight Common Commercial Real Estate Investor Questions
Whether you are just beginning your investing journey or are looking to take your portfolio to the next level, Arbor stands ready with our talented team and decades of expertise. Given our vast experience and national footprint of successful deals, we are familiar with many of the most commonly asked questions from multifamily investors, such as the ones answered below. Our team takes an entrepreneurial approach to creating tailored financing for each borrower, which helps simplify many elements of the multifamily lending process.
What Types of Loans are Available for Multifamily Properties?
Depending on factors such as a borrower’s property type, credit score, and investment goals, an array of options exists to meet your needs. Government-backed loans are advantageous for many borrowers, and Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA) typically have lower down payment requirements, flexible credit score requirements, and potentially lower interest rates.
What are the Fastest Options for Securing Multifamily Financing?
While the timing of application and approval processes depends on a borrower’s unique situation, multifamily bridge loans, or short-term financing to bridge the gap between purchasing a new property and selling an existing one, can generally close within weeks and offer loan term flexibility.
When is the Best Time to Update a Multifamily Property?
High quality boosts a property’s value and marketability. Renovations are often necessary both to keep properties competitive and when:
- Amenities Fall Behind: Outdated amenities like appliances or fitness centers can deter potential tenants
- Rents Stagnate: Upgrading the property can justify higher rents, increasing your investment returns
- Vacancy Rates Rise: Modernization can improve curb appeal and attract new tenants, reducing vacancy periods
What are Single-Family Rental Communities, and How are They Different from Conventional Multifamily?
Single-family rentals (SFRs) consist of detached homes, such as standalone houses, townhouses, or condos, designed to accommodate a single-family household. Conventional multifamily properties, such as apartment complexes and duplexes, contain multiple units and tenants within a single structure. SFRs are the second largest and one of the fastest-growing housing types in the U.S.
What is Build-to-Rent, and Why is it the Future of Rental Housing?
Build-to-rent (BTR) homes are detached, single-family units built explicitly for long-term rental tenants and often look like traditional, suburban-style homes. BTR homes can be duplexes, condos, and row homes and tend to have many of the same amenities as owned homes, such as green space, larger floorplans, and garages. With many Americans increasingly favoring renting over homeownership, BTR homes are poised to remain an attractive investment.
Why is Now a Good Time to Invest in Affordable Housing?
Given an ongoing affordable housing shortage across the U.S., there are ample opportunities and benefits for investors, including:
- Stable Rental Income: Affordable housing properties tend to have lower vacancy rates, ensuring a consistent stream of rental income
- Government Incentives: Programs like the Low-Income Housing Tax Credit (LIHTC) provide tax advantages for affordable housing investments. Section 8 vouchers also offer government assistance for eligible households, reducing financial burdens.
- Positive Social Impact: By providing housing to those in need, investors contribute to their community and create a lasting impact. As many communities continue to recover from the economic impact of the COVID-19 pandemic, investing in affordable housing helps everyone move forward.
What are Cap Rates and What Do They Mean?
Capitalization (cap) rates compare different real estate investments by calculating the ratio between a property’s net operating income (NOI) and its current market value. NOI represents the expected annual income the property generates, such as rental payments, after deducting all expenses like maintenance and property taxes. The current market value is the present-day value of the property based on prevailing market rates.
Cap rates help estimate an investor’s potential return on a real estate investment. However, they do not consider factors such as leverage or future cash flows from property improvements.
What Types of Market Cycles are Ideal for Investing?
Although there is never a one-size-fits-all market cycle, some periods are more advantageous than others, depending on your investing goals. Markets typically go through three cycles, each with its risks and rewards:
- Growth Cycles: While often more competitive, these can be great times to acquire assets as property values rise
- Stable Cycles: Offer predictability for long-term investors. Rents typically hold steady, and financing is readily available.
- Correction Cycles: Strong liquidity positions and thorough market research are vital, but these cycles may present opportunities for savvy investors to buy undervalued properties
Arbor is an Award-Winning Lender in All Cycles
Even the most experienced investors often have questions about each new project or acquisition, and having a lending partner like Arbor that has remained strong and successful through all cycles is critical as you make important decisions. Contact our team today to learn how we can be your long-term multifamily and SFR financing partner.
Interested in the multifamily real estate investment market? Contact Arbor today to learn about our array of multifamily, single-family rental, and affordable housing financing options or view our multifamily articles and research reports.