With substantial rehabilitation loan opportunities, we help our borrowers get the funding to improve their properties, since it is an established fact that one of the best ways to increase the value of a multifamily property is by investing in significant upgrades and modernization. Remodeling dated units, upgrading exterior facades and common areas, and replacing dilapidated mechanical systems can dramatically improve rents, ultimately increasing the value of the property.
These improvements require significant amounts of capital most property owners can’t or don’t want to fund out of their own pockets. The good news is that multifamily properties requiring major updating or repairs can qualify for a substantial rehabilitation (Sub-Rehab) loan. This loan provides the necessary funds for both acquisition and improvements of a multifamily property at the time of purchase or refinance. It’s great for developers targeting projects with upside potential while minimizing cash outlay. There are several loan programs available to help borrowers add value to their properties.
Multifamily Value-Add Loan Programs:
- FHA 221(d)(4)
- Freddie Mac Value Add Loan
- Fannie Mae Value Add Loan
- USDA Section 538 (rural areas)
- Flexible Private Loans for Unique Projects
Per unit rehab amounts vary depending on the loan type. The FHA 221(d)(4), typically with at least $6,500 per unit, has no cap other than the financial ratio coverage constraints of the loan. The Freddie Mac Value Add loan provides rehab amounts that range from $10,000 to $25,000 per unit.
Value Add loans for apartments are also a great option when two or more major building systems are in a state of significant disrepair–not minor or cosmetic, but critical to the building and its use. Typically, at least 50% of the system must be replaced when using funds from a multifamily Sub-Rehab loans.
Qualifying Major Building Components:
- Roof Structure
- Wall Structure
- Floor Structure
- Foundation
- Plumbing Systems
- Central Heating System
- Air-conditioning System
- Electrical System
FHA Sub-Rehab Multifamily Loan Programs
There are several FHA loan programs for the substantial rehabilitation of multifamily rental apartment properties:
- 221(d)(4)—Standard projects
- 231—Elderly housing (62+ age restriction)
- 241(a)—Healthcare facilities with FHA first mortgages
- 220—Rehabilitation areas
- 223f PILOT
- 223f refinance & acquisition
Benefits of an FHA 221(d)(4) Sub-Rehab loan include:
- Fixed interest rate for the life of the loan
- Up to 40-year Term & Amortization
- Non-recourse
- Assumable
- No rent control restrictions or affordability requirements
- GNMA securitization
- No occupancy or stabilization requirements for conversion to permanent loan
Agency multifamily Value Add Loan Programs
The Freddie Mac and Fannie Mae Value Add loans offer short-term, cost-effective financing for moderate property upgrades. Key benefits include:
- Competitive pricing
- Interest-only and uncapped floating-rate loan options
- Lower Execution costs
- Non-recourse
- “One-stop shopping” for upgrade and permanent financing
Link to the Freddie Mac Term Sheet at http://www.freddiemac.com/multifamily/product/pdf/value_add.pdf
