The Broker’s Guide to Multifamily Deals for Maximum Profitability

It is no secret that multifamily properties are one of the smartest assets an investor can add to their portfolio. Along with providing great cash flow, these properties are consistently in demand due to the strong appreciation potential and other wealth-building benefits they provide. As a broker or lending partner, understanding this asset class is key to growth both for you and your investor clients. Specializing in multifamily properties allows you to reach an experienced audience of investors and provide better service to them. Continue reading for our guide on multifamily properties for brokers and how you can ensure maximum profitability for these clients.

First: Understand the Investor’s Goals

If you want to provide the best service to a client, you need to start by asking them the right questions. This lets you build a strategy that is specifically tailored to their long-term goals and helps you build lasting client relationships. For example, some clients may be more interested in building cash flow, or prefer a hands-off approach to management, while others may want to get involved and make value additions that boost their returns. Experience is also important, as it is not recommended to get into multifamily investing if you don’t have some experience with rental properties. Other key questions to ask include their preferred deal size, credit/financial profile, and overall risk tolerance.

Know the Key Metrics that Drive Profitability

Having a good understanding of the key metrics that determine if a multifamily deal will be profitable helps you make better decisions to guide your clients’ strategies. Cash flow is a simple enough metric, but calculating NOI and Cap rate will allow you to directly compare different properties and determine which is a smarter investment. When it comes to securing financing, DSCR is also a key metric. A healthy DSCR of above 1.10 shows lenders that an investment has strong return potential and will make it easier to secure favorable terms.

Investors will appreciate working with brokers who have a good grasp of these metrics, and who take the time to explain them in simple terms. It shows true expertise on your part and helps you build lasting relationships with these clients.

Choose the Right Financing Strategy

Financing impacts nearly every aspect of an investment, from initial down-payment to cash flow, including the investor’s ability to scale their portfolio. That is why it’s crucial that you take care to match clients with financing that fits their needs. Some of the best options for financing multifamily deals aren’t from traditional lenders, but rather private lenders that operate in the real estate space. These lenders typically use DSCR (debt-service coverage ratio) to qualify properties for financing, or basically, how much of the property’s monthly debt obligations are covered by its income. This allows borrowers to qualify for financing even if they have less-than-perfect credit or non-W2 income, and funding can be delivered much faster than with conventional loans, which is key in time-sensitive scenarios.

Private lenders also offer other programs like bridge loans, which are short-term loans designed for quick acquisitions or value-add projects. These loans can also be a key tool that help your clients make the most of their investment plans.

Don’t Overlook Operating Costs and Management

While most rental property investors focus on boosting their income, uncontrolled expenses can end up seriously hurting their bottom line. Employing smart strategies to reduce expenses without hurting the overall tenant experience is key to maximizing net income. As an investment partner, you can sit down with clients to implement some of these strategies, and in turn, improve their ability to secure favorable financing terms. This often means taking a deep dive and calculating total property management costs, maintenance expenses, and loss of income from turnover/vacancies. From there, you can add value by helping clients identify and reduce expenses in their most problematic areas.

Plan an Exit Strategy from Day One

It cannot be stressed enough how important it is to have a viable exit strategy that can be implemented at a moment’s notice. Failing to do so often leads to unnecessary holding costs which will hinder your client’s ROI. Be sure to discuss multiple strategies with your clients, from reselling to refinancing so they can further expand their portfolios. You should also discuss alternative options like 1031 exchanges, which allows investors to defer capital gains and facilitates portfolio expansion. Taking the time to give clients the whole picture helps them feel confident in their strategy and also helps build lasting relationships which means you can grow your business as well.

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 rental property financing to your clients, RCN Capital has competitive loan options and an award-winning broker referral program available to partners.