Helping Investors Scale: Multifamily Financing Strategies For Brokers

Multifamily properties have always been a consistently good way to build wealth through real estate investing. These properties provide many benefits over single-family rentals, ranging from higher cash flow to better appreciation potential. As a broker or lending partner, you play a key role in guiding the strategies of your clients to ensure success. That’s why having a good understanding of multifamily investing is so important. It gives you another tool to help your clients succeed and gives you more opportunities to become an investor’s choice financing partner.

Interested in learning more? Read on as we take a deep dive into multifamily investments and the financing strategies brokers can utilize to assist clients in acquiring these properties.

The Case for Scaling to Multifamily

The advantages of a multifamily investment are clear when you look at returns over a longer time period. Multifamily homes tend to have better appreciation and cap rates, which means equity can be accumulated faster. Vacancies are easier to deal with because there are multiple sources of rental income. Additionally, managing multiple rental units in the same building is logistically easier than owning several single-family homes. Brokers who can highlight these benefits, and encourage clients to consider the long-term gains, are able to overcome client objections and close more multifamily deals.

Common Challenges Investors Face When Scaling

Another thing to consider is how to help clients navigate the challenges of scaling up to a multifamily investment. For starters, it’s recommended that an investor has some experience managing rentals before acquiring a larger (5+) multifamily property. There are also common concerns that come with managing rental properties that tend to scale, including tenant screening errors, tenant requests, and operating costs. As a lending partner, you should ensure that your clients fully understand these risks before taking on the larger responsibilities that come with operating multifamily rental properties. At the same time, helping them navigate these challenges presents a great opportunity to build lasting relationships that are mutually beneficial.

Key Multifamily Lending Strategies Brokers Should Know

Let’s talk about all the different paths you can recommend to your clients for financing multifamily investments:

• Agency Loans: Such as Fannie Mae/Freddie Mac, which come with low interest rates and down payments. However, they often have strict requirements for both the property and the borrower’s financial profile.

• DSCR Loans: Offered by private lenders who operate in the real estate space, and who are more focused on a property’s cash flow than the borrower’s creditworthiness. The advantages included less stringent and faster approvals, but they sometimes have higher interest rates than conventional mortgages.

• Bridge-to-Perm Financing: Provides investors with a lower cost way to own a high-quality multifamily property. Value-add projects cost less than acquiring a new home and still provide excellent cash flow. You play a crucial role in helping investors transition smoothly into a permanent loan.

• Portfolio Loans: Intended for investors who already own a number of investment properties. These loans simplify financing structures and can also end up saving borrowers money.

• Creative Financing Structures: Including seller financing, join ventures, and syndications. For clients who aren’t able to secure traditional financing, be sure to explore these alternatives. They offer a path to owning multifamily property while demanding less of a capital investment up front.

How Brokers Add Value Beyond Lending

A crucial part of building lasting relationships with multifamily investors is providing value beyond the loan. Brokers and lending partners help their clients in a variety of ways, from advising on investment strategy to conducting due diligence and market research. If you want to stand out and become a borrower’s go-to lending partner, then you should be prepared to offer these services. Help investors identify lucrative markets and good deal opportunities and use your own market expertise to guide their exit strategy. They will be sure to appreciate the help, and you can grow your pipeline of repeat business in the process.

Work With a Lender That Supports Smarter Investor Financing

The other key piece of the puzzle is choosing the right wholesale lender to work with. There are many lenders that operate in the real estate space, but not all are created equal. Ideally, you should look into your partner’s reputation and track record to ensure they have a history of reliably delivering multifamily financing. A stellar partner will understand the unique needs of these investments and be able to provide an outstanding experience to you and your clients. Be sure to also utilize the additional resources a lender might offer, such as white label marketing materials and professional connections which empower you to deliver better service to your clients.

RCN Capital

To help your clients maximize the returns on their next investment, partner with a lender that can provide you with the best leverages and rates. RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners across the nation. We provide short-term fix & flip financing, long-term rental financing, and new construction financing for real estate investors and lending partners. If you are looking to offer smarter rental property financing to your clients, RCN Capital has competitive loan options and an award-winning broker referral program available to partners.