It's not all about the local bank. Consider these types of lenders too!
So the Fed raised rates again, with more increases expected this and next year. So what? They are still at historical lows, and it’s not a bad time to put debt on a multifamily investment property.
That being said, it’s a competitive market. There are more multifamily lenders available than ever before, more competition between lender categories, and it may take widening your net to get the best loan.
Many newer multifamily investors will start financing their properties by walking into the local bank and striking up a relationship with the commercial lending team. That’s not a terrible strategy — if you pick the bank wisely and get lucky enough to find a quality originator that can take a chance on a new investor. But as time goes on and experience sets in, you’ll learn a couple of lessons.
First, not all bank’s commercial loans are created equally. As much as it’s helpful to draw on your relationship with a lender, there are real differences between the capability, structure, and cost of capital among community and regional banks. You’ll never know exactly what type of loan was available from the bank you didn’t talk to.
Second, the bank is not always your best option. Want the most flexible pre-payment option? A federal credit union may be your best bet. Prefer to avoid recourse? Settling into either Freddie Mac’s small loan program, or Fannie Mae’s, are often your best bet. And the comparative rates between all those options vary not only with the market and location, but also lender to lender.
The table above can be used as a rough reference point for the different types of Multifamily lenders out there, but the truth is that there are credit unions that lend non-recourse, Life Insurers that provide small-balance loans, and larger banks that won’t look at a deal under $40 Million. Knowing each of those outliers at any given time is true challenge for a property owner that only engages the capital markets a handful of times each year, and a real benefit if you can strike the right contacts. A lender’s public-facing persona often doesn’t tell the true story.
At StackSource, we use algorithms to match the correct lenders for a given deal, drive competition between them, and advise the borrower on the options available in the market. There’s no one-size-fits-all financing for commercial real estate, and the right answer will be one that matches your investment strategy.