B2R Finance Bullish on Small Balance Multifamily Market
Small balance multifamily lending experienced a robust year in 2014, and fundamentals look good for continued strengthening of the market this year. Of the almost $1 trillion in multifamily financing outstanding, small loans (under $5mm) comprise about 29 percent of the market. This translates to $272 billion with an average loan size of $1.2mm. Expected 2015 refinance volume for small balance multifamily is expected to be $55 billion. Low interest rates, rising property values and improving property fundamentals all played into the sector’s growth.
Commercial and multifamily mortgage originations increased 27 percent between the third and the fourth quarters of 2014, according to the Mortgage Bankers Association’s (MBA) Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations. In a preliminary estimate for full-year 2014, The MBA said originations in the sector were up about 7 percent over 2013.
Among all investor types, originations are on the rise.
At Fannie Mae, the GSE provided $28.9 billion in multifamily financing last year, with increases in its affordable housing, large loans and student housing segments. Freddie Mac provided $28.3 billion, up 10 percent over the previous year. It expects double-digit multifamily growth this year.
At B2R Finance, we are bullish on the prospects for the small balance multifamily sector going forward.
Why the positive view? Rents are growing, for one. Secondly, values of apartment buildings have been on the rise for several years. Finally, we believe lifestyle changes and changes in attitude about renting versus homeownership have strengthened the multifamily market.
There are several advantages to investing in multifamily properties, including a lower price per unit (sometimes referred to as the “cost per door”) versus typical single-family rentals. This property type also offers income diversification. If one renter moves out of a multifamily property, it doesn’t have the same impact as the only renter moving out of a single-family home.
Maintenance also tends to be lower for multifamily properties because of the ability to consolidate overhead and hire a single entity to manage the maintenance of multiple units.
Single-family homes, especially when bought in bulk, offer some key advantages to the real estate investor.
It’s easier to sell them, should you decide to sell, because there are more potential buyers interested in single-family homes than there are buyers interested in apartment buildings.
If the home is in a desirable location, this could also help attract quality tenants and reduce tenant turnover. Turnover in apartment buildings, which tend to attract single renters, is usually higher.
SFRs (single-family residences) may also appreciate faster than multifamily properties. Appreciation of single-family homes is tied to factors such as home values and location while multifamily appreciation is tied to gross rents, net profit and potential for growth.
Real estate investors seeking lower property taxes may find themselves drawn to SFR over multifamily, as such properties don’t require commercial insurance. While the multifamily investor can consolidate maintenance to reduce costs, the single-family investor won’t have to deal with headaches such as paving the parking lot or maintaining security gates.
LENDING TO BOTH
B2R Finance offers flexibility that we think will be appealing to real estate investors. For example, investors can cross collateralize single-family rental houses with multifamily into a single loan with B2R Finance. This flexibility allows real estate investors the opportunity to take advantage of income diversification as well as less hassle when making a single mortgage payment on one “blanket loan” versus making multiple mortgage payments multiple properties.
We lend on a wide variety of residential properties, including single-family homes, 2-4 unit homes, townhomes, condominiums and apartment buildings, including Section 8 housing. Properties must be owned as investment properties and not occupied by the borrower or a member of the borrower’s family.
NEED MORE INFORMATION?
For more information on asset-based lending and how you can leverage equity in your current rental properties to unlock equity and free-up cash to buy more rentals, just call 800-227-8107 to connect with a B2R Finance Account Executive today.
The information on this page is provided for informational purposes only and does not constitute investment, real estate, or legal advice. This information should not be regarded as a recommendation or an offer to buy or sell any product or service to which this information may relate. No representations or warranties whatsoever, express or implied, are given as to the accuracy or applicability of the information contained herein. The information may be modified or rendered incorrect by changes in the marketplace or developments in the law, or for any other reason, and may not be applicable to any individual reader’s facts and circumstances.