3 Ways to Stay Stress Free While Managing Your Apartment Loan
Just because you closed your deal doesn’t mean you can shrug off your multifamily lender. Here’s a few tips to avoid undue stress after closing on that apartment investment property.
You have closed a new multifamily deal. Congrats. After you’re done celebrating with your business partners (no breaking bottles of champagne on your investment, O.K.?) it’s time to develop a loan management process. Getting behind on your servicing requirements leads to unnecessary stress. Who needs that?
Aside from a timely monthly payment, there are a few things to keep track of to stay in good standing with your lender.
1. Get a Jumpstart on Repairs
“But I thought this was a guide to managing a loan, not a property.” Well, there’s a good chance that there are some targeted property repairs that came up during your lender’s walkthrough and appraisal. Depending on your financing source, you might have been set up with a completion repair escrow and schedule for making said repairs. The time frame can be as short as 30 days before you start racking up fees or a non-monetary default. You don’t want either. So get a jump start on those repairs and make sure to notify your lender in writing when the jobs are done. An inspection and title search may be required before any funds are released.
2. Reporting Requirements
It is crucial to stay on top of reporting requirements if you want to stay in great standing with your lender. You’ll want to keep this in mind whether you have additional deals in the pipeline or not. Create a process, stay on top on the schedule and you’ll stay stress free.
Actual reporting requirements vary by lending institution. For Fannie Mae and Freddie Mac loans, requirements are fairly standardized and include things like a year-end financial statement prepared by independent accountants and annual personal financial reports. Sometimes quarterly reporting is necessary. Keep an updated rent roll with each tenant’s name, monthly rent, as well as lease commencement and expiration dates, and you’ll be ahead of the game.
So what’s the big deal if you forget to send something in? Well don’t hold your breath on a draw request from a replacement reserve or completion repair account if there are any past-due reports on your loan. Ditto for an escrow overage reimbursement. Lenders typically will not release any funds until they have been updated with the requested information, whether it be a report, update on deferred maintenance or payment of outstanding late charges.
3. Keep Your Lender in the Loop
It might be tempting to make a change at your property without notifying your lender. It might not even cross your mind to call up your lender to ask permission before bringing in a new cable/internet provider to your asset. You’re an adult and successful enough to own an apartment community, right? Well that simple cable easement — or any easement for that matter — needs to be approved by your lender first. This goes back to thinking of your lender as a partner. Here is a short list of some other factors that should be lender-approved before taking action.
- Change in Property Management Company
- Change in Insurance Policy
- Change in Amenities (e.g. replacing a tennis court with a dog park)
- Change in unit structure (e.g. turning two units into a common room)
- Change in Cable or Internet Provider
- Installation of a Cell Tower/Antenna
- Capital Improvements (e.g. renovating units)
You see where we are going with this. You should notify your lender before making any changes to your property outside the scope of regular, day-to-day maintenance. Don’t notify your lender if you are replacing a broken shower head. Do reach out if you plan to replace every shower head with new WaterSense low-flow fixtures.
Remember that as a savvy apartment investor, you have started a long-term relationship with your lender. You’re playing on the same team, and your interests in running a great — and profitable — apartment asset are completely aligned.