Value-Add Loans

How can you increase property value without tapping in to your capital?

With the right loan as you invest in upgrades and modernization to generate interest and increase rental income!

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 which ultimately increases the value of the property. These types of improvements require significant amounts of capital most property owners don’t want to fund out of their own pocket. Multifamily properties requiring major updating or repairs can qualify for a Value Add or Value-Addilitation (Sub-Rehab) Loan. A Sub Rehab loan provides the necessary capital for both the acquisition and the 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 to help borrowers wanting to add value to their properties.

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) loan requires a minimum amount of $6,500 per unit with no cap other than the financial ratio coverage constraints of the loan. Alternatively, 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. These types of repairs are not minor or cosmetic,but are 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 loan.

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 allowing for substantial rehabilitation of multifamily rental apartment properties. These include:

  • 221(d)(4) (Standard projects)
  • 231 (Elderly housing, 62+ age restriction)
  • 241(a) (Healthcare facilities with FHA first mortgages

220 (Rehabilitation areas) Benefits of a FHA 221(d)(4) Sub-Rehab loan include:

  • Fixed Interest rate for life of loan
  • Up to 35-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: Note that Davis Bacon wage requirements apply to repair work performed with the proceeds from an FHA 221(d)(4) loan. This link will allow you to view what those requirements all for all types of trades in the state and county of your property.