What You Need to Know About Multifamily Rentals a Portfolio Loans

In this episode, Nate Trunfio from Lima One Capital joins us to share essential knowledge about multi-family rentals and portfolio loans. Nate and Michael also share some important lessons learned throughout their careers. If you are looking to transition from single family to multi-family or want to bundle your loans into a portfolio loan this episode is for you. --- Transcript   Michael: Hey everybody, welcome to another episode of The Remote Real Estate Investor. I'm Michael Albaum and today I'm joined again by Nate Trunfio with Lima One Capital. And Nate and I are going to be talking today about making the jump from single family to multifamily and some things to be aware of, as well as portfolio loans and a lot of different things to consider when to use them, and maybe when to avoid them. So let's get into it.   Nate, welcome back to the podcast, man. super happy to have you back on.   Nate: Man. I don't know how I made the cut for another one. But man, I'm just thankful to be here. So thank you.   Michael: So I thought today, we could pick up the conversation. We had you on the podcast last time and we started talking about portfolio loans. And then we also started to dovetail into talking about multifamily. So we'd love to start with talking about portfolio and then we'll jump into multifamily Sounds good?   Nate: Absolutely.   Michael: Awesome. So I don't remember if we covered it on the last episode, but maybe for those folks who didn't catch it, what is a portfolio loan? And who might be a good candidate to use them? I think there's a lot of misnomers around the name itself. So give us the quick and dirty about what it is.   Nate: Absolutely. Yeah, so just as a reminder, Nate with Lima, one capital providing financing solutions for all types of investors with a residential focus that's both single family and multifamily following the residential category, one of our favorite products is very large, a growing appetite for is portfolio loans.   And so essentially, a portfolio loan is in our world, at least anything that's more than one property. Alright, there's different functions of loans that are implemented when you have more than one asset, because it just things get a little complicated, right? What happens if one deal gets paid off, and there's were two in the loan, which we can certainly talk on, but our portfolio loans not only addressed the need for smaller size portfolios, you know, 2-5-10, but all the way up 50 and 100 plus, so there's a couple different variations. But the bottom line is if you want consistent terms, on all assets baked into one loan, that's when you're going to look for a portfolio. If you have one investment strategy for all of your assets, that's when you want to look at a portfolio. When you say when wouldn't I look for a portfolio and I own multiple assets, it's sort of back to what I just said, of, if you have numerous investment strategies, like you're very confident that you're going to want to take some assets to market soon, you might want to reconsider putting those into a portfolio. But the bottom line is if you have an investment strategy, and you own multiple assets, in all of the assets, that you're looking to finance have that same strategy, that's when you're going to go out and get a portfolio loan, it could be on the acquisition ends, you can buy a bulk property portfolio with a loan, you can take properties that are free and clear and combine them into a loan. You can take ones with existing debt and trying to get better terms on it, especially with nowadays low rates. Or you could have good rates on your existing loans on assets and want to recapitalize or refinance and take cash out. So a lot of different options. But the bottom line is multiple properties, but with a more singular investment strategy is when in a portfolio loan is going to be of good use to you.   Michael: Okay, awesome. And so I know that the loan structure starts to change when you make that transition from residential to commercial in the multifamily world. And that happens at five units plus, so does somebody need to have five single families in order to be eligible for a portfolio loan?   Nate: Yeah, great question. So with Lima one, we actually have two different products that will address both scenarios of sub five properties in a portfolio, or more than five properties in a portfolio. So I don't want to get too convoluted with that and simply say, No, you don't have to have the five plus properties in order to get a portfolio loan with us. But there is one of our subset of portfolio products that is only five plus properties. And it just has a couple of additional nuances. And I think you made a sort of great attribution to your point there is that product is more of a commercial type loan. And if you think of commercial loans, it's five plus units.   So that's probably a good way to delineate the two products. And there's different reasons why you take one versus the other, again, don't want to get too complicated because we offer numerous different terms and solutions, instructors, I should say, to all portfolios of all sides. So I'll just quickly go into that. And if we want to dig deeper, we can but the options would be interest only. So with us we have a five year and a 10 year interest only. We also have 30 year amortized products. So that would be a five one arm or a 10 one arm which means that the rate is fixed and guaranteed for five years or 10 years and the 10 one, and then it's subject to be adjustable thereafter.   And then we also have a 30 year fixed so you can tell there's numerous options there. If that wasn't enough options for you. There's other terms that we can play with and maneuver based on your investment strategy. Like one of the hot topics with portfolio loans is what are prepayment penalties. Unfortunately, for the most part, prepayment penalties are a nature of the beast of most long term financing options in the residencetial focused world. And so we can move those and make them wider and more impactful, which will hurt you if you're paying off assets in the near term, but you get a lower rate as a result, or we can shorten the impact in the amount of prepayment penalties, you just pay a little bit more in the rate for that.   So bottom line is no matter what your strategy is, you do want to work with somebody that has multiple options like us here at Lima one capital, because what we take pride in is customizing our financing products to what your goals are, because there's not really one portfolio. That's the same as another.   Michael: Yeah, yeah. Awesome. And for those who don't know, what is a prepayment penalty?   Nate: Good question. So a prepayment penalty is if you pay off a loan within the penalty timeframe, there is essentially fees associated with paying it off early. The natural question is probably why would a lender impose that. And it's really just because we're providing a very low interest rate long term debt. In order to do that, we as a lender have to hit some level of minimum returns. And so a prepayment penalty allows us to make sure that we hit the returns that are needed s o that you know, the lenders and anybody, you know, the banks, lenders on the institutional side, can make sure that they can hit their sort of return targets, if you will. So I hope that's not too convoluted there. But the bottom line is, you know, it's really hard to provide a call it 30 year loan at four to 5% if somebody pays it off in six months, a lender only made, you know, at a 4% rate 2% on that money. I mean, banks are, you know, getting money between one to two is not much margin for them to be able to stay afloat and provide more portfolio loans to other borrowers.   Michael: Sure. So it's a way to basically incentivize people to not pay off their loans early is what they're designed to do. Right?   Nate: Yeah. And unfortunately, that's how it would be interpreted. It's certainly not designed to do that. But it's it's an essence to allow lenders provide you with lower rate terms up front rather than no prepayment penalty and higher rate. And that's where with us, we can work through the option. So let me just get specific real quick. You typically on a five or 10 year, like fixed rate, or arm or balloon note, whatever you want to call it will have like a five year prepayment penalty, they usually call it a step down. The most common one is 54321. If you pay it off in the first year, it's a 5% fee penalty. The second year, it's for the third year, it's three, the fourth year, it's to the fifth year, it's one I hope you followed that.   We can also look to shorten it for a three to one, that's three years of penalty, the first year three the second year to the third year one. And because there's sort of less guaranteed revenue at the payoff early of the loan, you take a little bit higher rate on a three to one a three year prepayment than a five year prepayment. hope that makes sense.   Michael: Makes total sense. It's funny, I was just actually getting a loan on a triplex I have commercial loan, and it was having this exact same discussion as they they wanted to give me a five step down and I said no, make it shorter, just in case I want to go ahead and refinance. I don't want to be stuck in that loan if rates come down in the next three to five years.   Nate: And that's it, man. I mean, you hit it on the head. That's what we you know, financing service specialists will analyze, like, what's your investment strategy tied to a portfolio or an asset, and then we'll customize the solution and product to it. Because if you think you might sell in the next, you know, couple years, three years, call it, you're gonna want a lesser prepay and you'll sacrifice a little bit and payment rate, but if you know you're going to hold an asset for 10 years, you know, take the most aggressive, you know, an expensive prepayment penalty, because you're holding it for more than the prepaid penalty.   Michael: Right.   Nate: So in on a three year prepay, if you pay it off in the fourth year, there's no penalty, because it was only for three years with a prepayment penalty.   Michael: Right, right. Not such a great point. And something I've heard in the past is that the term portfolio lender, the name kind of gets thrown around a lot. And that's someone that actually keeps the loan on their own books and their own portfolio. Can you talk to us a little bit about that?   Nate: Yeah, yeah, great, great point. Another way to describe that is a balance sheet lender, right? Somebody that holds it on their own balance sheet, super passionate about, like the mechanics, the what's underneath the hood and underneath the skirt, if you will. But you know, most people don't know the mechanics that are behind the scenes. So there's really like two main I'll there's many, but I'll call it two main sort of function structures, and how lenders are capitalized.   It's one their balance sheet, or to what I'm going to call it, they use a capital markets, secondary markets, sort of methods and mentality balance sheet is they fund your loan and they hold it, it is on their books, right? It's it that's what you would call in the essence of a portfolio lender from that perspective, somebody that is a lender that use more of a capital markets and secondary markets mentality, they're funding your loan with their money up front. And then they're usually selling a loan off in the capital markets or the secondary markets, if you will.   So that's the difference in the two, a subset of capital markets secondary markets type lenders is they can either do servicing released or servicing retained again, I hope I'm not talking too much lending mumbo jumbo, as I like to call it,   Michael: No it's great.   Nate: But servicing released means that a lender sells their loan and the servicing is going to be done by somebody else, a third party, so many of you in in the residential world, this is a mainstay a common point except for some of the very large lenders, you know, like you think of your Wells Fargo's and stuff like that, but even they will use that at times on who is collecting your payments, you know, usually the first payment will be collected by the person who funded your loan. But if they sold it off quick enough, you might get introduced to a servicer, that, again, is servicing released. So now you've got the loan for one company, and then now you're paying a different one.   Servicing retained is when we fund the loan, and were the ones that you're going to see throughout the life of it from first payment to pay off, we are very pleased to say at least one capital, we always service our loans, we will never sell your loan off and and the servicing with it. And so you're always going to have an experience with us as your servicer. And in the investor world that is extremely, extremely important.   Certainly payment it makes it better with payment collection. Because we have in house I can go right down the hallway to get to somebody in servicing to talk to them, rather than call a third party servicer and get run up and down that the phone tree and things like that. But specifically for investors, when there's any form of financing and hold back of construction monies, it's important that you deal with one source that manages that construction funds.   So for us at Lima, one capital we have in house servicing in house construction management. So the same people that analyze your budget and approve your budget on a rehab, project fix and flip or multifamily are the same people that talk to you, as you're in work with you as you request draws. And that is very important, because, you know, we underwrite the budget and approve it. And then it's serviced by third party construction management company, most of the time, the left hand doesn't speak to the right hand, and that is just causes delays and getting clarity and the timeframe of reimbursement of draws is always slower.   So we're very proud of the fact that we have in house servicing, it's a big asset, certainly not only to us as a lender, but to all of our clients, because it just allows us to create true relationships and streamline communication.   Michael: Awesome. And so is there a difference in regulation when it comes to loans that are sold off in a secondary market versus serviced on the balance sheet or in house? Really great question. So specifically, I will reference like commercial lending because residential lending is a little bit different world and residential is very much an answer of there is heavy regulation in all regards balance sheet or capital markets, type based models are showing, in the commercial realm, it's a little bit different. There are the best way to describe it's there's overarching guidelines, put out by the CFPB to make sure that lenders aren't egregious, and they don't provide terms the fall into usury, meaning too expensive of money and taking advantage of people. So there's some big overarching guidelines there. But a lot of the nuances that are imposed on the residential sector like Fannie, Freddie, primary residence type mortgages are not imposed on commercial lending. It's one of the big differentiations.   So it's not as much in the commercial world, but yet the government is put things in place to make sure that again, people aren't being taken advantage of, which is one of the reasons why nowadays where you've seen all this uncertainty due to the pandemic, when you know, the financial crash happened in the 2000s. Lenders were scapegoated for you know, half of the crash, right? Well, nowadays that we've tightened up the control, mainly from sort of the government on down to make sure that lenders are more diligent, and therefore, there's not really much risk right now of lenders being some of the problem in any potential downfall to the market or crash to the market. Because there's just all the regulation to make sure that we're doing things right, which is very important that has been done. So I think that hopefully puts things into perspective. I think it's a great question. I certainly don't want to bore too much with some of these crazy acronyms in the in the guideline and regulation world,   Michael: CFP p ABC 123!   Nate: You got it, man. And just forget about like, I was six, seven years in residential lending,   Michael: Forget it!   Nate: But it is important for, again, the safety of all consumers. And I guess the mentality of the government is if you're looking for a commercial in business purpose loan, which is what like investor loans are based in, they think that, you know, hopefully, you're a little more sophisticated, they like to watch it as much that sort of mentality. And then also we in business purpose and commercial lending, hold ourselves now to a higher standard because again, we saw what happened in the crash. So we don't want that to happen. We don't want the government putting more on us. We want to be able to help investors.   Michael: Yeah, makes total sense. I reason ask the question is I was chatting with a buddy the other day and I got commercial loans and residential loans and I wanted to get a lower rate on my residential loan. And so I went to the bank and I said, hey, can rates have come down, what can you do? And they say, Oh, yeah, we can refinance. This is the rate, this is how we're gonna do it. And then I go to my commercial lender, and I was like, hey, rates come down, what do you do? He's like, oh, we'll just do a loan modification, your interest rate was here. Now, we'll just put it here. And then you sign a piece of paper, and it's all good. I was like, that's it cool. I don't do the whole refinance process. It was it's so much more flexible, like you're mentioning on the commercial side, they can just do things and it's an in house portfolio lenders, they keep it on their books, it's so much easier to deal with, as opposed to the entire refinance process jumping through all these hoops.   Nate: Absolutely, man. And I will say, you know, one of the biggest differentiations from as you called portfolio lender, balance sheet lender, for somebody who sells loans off to loan buyers, usually institutional sources, is balance sheet lenders do have that much more control. If you have to sell your loan to somebody else, then now I got to follow their rules a little bit.   Most of the time, there is certainly negotiations, because the originating lender typically like knows most about the clients that they're trying to service and provide loans for. So there is a little bit of a back and forth negotiation between the two. But at the end of the day, if you you know, it's the golden rule, He who has the gold makes the rules. So if you control your money, and you keep it on balance sheet, you're going to be able to make your own rules more so than if you're going to have to use someone else's money to buy the loan.   Michael: Sure, sure. And so for everybody listening, if they're interested in getting a portfolio loan or learning about at the lender they're working with are going to be working with is a balance sheet lender or not? Do they just simply just ask the question of the person they're speaking with? Hey, do you service your loans in house? You? How do you ask that question?   Nate: Honestly, man, you took my answer. 100%, the easiest way to do it is simply ask, you know, who services the loan? Or will you also be the person collecting my payments? And then you'll essentially get that answer. You know, you can also just ask them that direct question. A lot of sort of loan officers don't know how to answer that to be quite frank, because it doesn't necessarily affect them. But I think your question is spot on.   Michael: Okay, awesome. So let's transition a little bit and talk about multifamily, which is a fun topic. I'm a big fan of I know you are as well. So I think a lot of investors get their teeth cut with single family and then look to move into either small multifamily, residential, multifamily, and then ultimately, commercial multifamily at some point down the road. And so talk to us about some of the ways that you've seen that go well, and what products people should be on lookout for to take advantage of to help them make that jump.   Nate: Absolutely, man. And I'm also going to plug maybe bring me back a third time, because the other thing is new construction and like build to rent one of the hottest trends in investing nowadays, too. So because one of the things I always bring up when you talk about transitioning from single family to multifamily is there's specific reasons why a lot of people want to do it. One of the easiest ones is described as you know, economies of scale, essentially be able to bring in more income because there's more units in one asset versus a single property, you know, rent alone versus one tenant in one unit. So that's sort of what's so attractive.   The other thing is that, you know, look at where we're at with supply and demand of single family assets. It's sort of the same in multifamily, which is where people started ago, a number of years ago. But now that's, you know, really significantly high demand that people wanted to buy multifamily. So the next thing has been, alright, let's take land and go ground up and start building and now build to rent is a huge trend as well. So I did want to plug that and we'll tease everybody, and maybe circle back another time. So Mike, put me back on track, though, with the right question here.   Michael: Making that jump from single family to multifamily and what products might be helpful for someone to look into to do that?   Nate: Yeah, so let's also take a step back to and just talk about a lot of the differentiations for managing and running and investing in single family, first multifamily. But one of the first things is, you know, well, what I'll say is there's just differentiation between the two, as much as it's so simple like to think that it's the same there are very different when it comes to the actual strategies and logistics of multifamily versus single family.   So from a debt perspective, where you really will want a need to go is to a lender that can read in between the lines, and understand, you know, your business strategy and the ability to get your financing multifamily, because if you start to go to a multifamily lender that provides permanent type debt, a lot of times they're going to want to see experience and then you're in that conundrum of Wait a minute, how can I get alone if I don't have experience? And how can I get a property if I don't get a loan?   Michael: Right, right. Right.   Nate: You know, so you got to work with the in betweens there. So you either go local to your banks that you have relationships with, you know, maybe the ones you call depository banks, you know, the ones that have your checking and savings accounts. Those are a great route to finance you transitioning from single family to multifamily.   The other one is is us right, a private lender and institutional nationwide, private lender. All we do is finance real estate investors. We have a single family, multiple single family products and multiple multifamily products. We're able to work with people that don't have a ton of experience in multifamily or any for that matter, but there's certainly some guardrails there. And I guess the easiest way to put that is if you're not a high velocity Single Family, you know, operator meaning you own, let's just use a number of 100 doors. It's tough to come in if you own 10 doors single family to get multifamily loan for 100 unit complex, right? It's just very different.   Michael: Too big of a jump.   Nate: You might be able to get the loan if you own 100 single families in 100 unit complex, but even then, it's looked at with some pretty close eyes. So I'll pause there if you had anything you wanted to add. But I think let's talk about some of the other realms that are just different between single family and multifamily investing. Not even just lending related.   Michael: Yeah, totally. Let's definitely chat about that. But I just want to be very careful when we clarify and specify multifamily because the term gets thrown around so much and we've got duplex triplex quad, which you know, residential multifamily, of course, from an investment strategy and financing standpoint is is from a financing standpoint is quite similar, I would imagine to the single family space, but from an investment strategy standpoint can be different. And then as soon as you hit that five plus number, everything goes out the window. So let's just call it small multifamily to start for two to four units.   Nate: Well, and I don't know if this is the right term, but this is what I use. So maybe we can make it a term like I call two to four unit multi unit property I call multifamily five plus, I think I made that up. So if it works for everybody listening, just let me know, I'll go trade market or something. But yeah,   Michael: like multi unit multi unit.   Nate: So you know, look from our standpoint, as a lender and you know, private lender financing real estate investors, multi Unit Two to four units, we actually treat the exact same as single family. So for us, if you're not really going to try the methodology of like a fix and flip on on a multi unit, we can go up to 90% loan to cost on a multi unit or a single family or one unit.   So we call that you know, in the same world not to confuse people. But in the residential traditional lending, Fannie Mae, Freddie Mac, they do treat duplexes tries and quads a little bit differently than a single family residence itself.   Michael: I thought it was the same.   Nate: So usually there are reductions in cash out that you can get and on the acquisition financing, usually, not all, but a lot of them will, for example, single family conventional without PMI is 20%. Down he percent right in the multi unit. A lot of times lenders are Max 75% got it same with cash out will be up to 80% on a single family, Fannie, Freddie and 75 for a multi unit. Not all lenders, but many of them.   Michael: Sure. I have heard that as well. And so without getting too off topic here, with so much regulation in the Fannie Freddie world, I mean, how is that why do you see such a big disparity between lenders if they're all using the same programs and selling their loans in the same secondary market?   Nate: Awesome question dude really awesome question. So yes, the simple answer and the word that I will use in the lending world. It's called overlay guidelines. So what happens is, I'll just focus on Fannie Mae, right. I mean, there's multiple types of residential lending. It's usually government sponsored entities, maybe not so much government sponsored soon. There's a lot of talks about Fannie and Freddie not being government sponsored right now. But it's Fannie, Freddie. And then there's the FHA, VA and USDA, those are like the five main realms, right?   So I'm just gonna focus on Fannie Mae, Fannie Mae puts out guidance on what their overall guidelines are, and no lender that wants to have Fannie Mae back there. loans are essentially provide conduits and outlets that Fannie Mae and other people who buy Fannie Mae loans can bay them in. you can't go above and beyond those guidelines most of the time, right? You can look for significant exceptions. It's a lot more paperwork and due diligence from an underwriting perspective.   So Fannie Mae puts out these guidelines that are very wide, and then each lender that wants to write a Fannie Mae loan can impose their own guidelines that are stricter than Fannie Mae's wide guidelines, those are all their overlays. So very much. The reason why you would see some disparity is Fannie Mae might say you can do 80% LTV purchase on a multi unit, but Chase Bank might say, Yeah, well, that's a little too risky for our appetite, we're only going to cap it at 75.   Michael: Got it.   Nate: So the overlay guidelines that a lender will in place in order to hit with their strategies are sometimes that's tied to their investors behind them is where you'll see the differentiation between the two. It's really hard as a consumer to identify who's doing what and why and all that stuff. Don't go down that road. But the bottom line is, Fannie Mae's guidelines will allow for wider lenders have their overlays, and Fannie Mae and Freddie Mac and all the other ones I listed have their own proprietary type automated underwriting guidelines they call them. And if you were to like print that those guidelines out with all the variables that analyzes in a couple clicks of a button, I don't know it's 1000s and 1000s of pages of code and variations of what can and can't happen and then lenders tighten it up.   Michael: Sure. Okay. So I couldn't go Google lenders with the loosest overlay guidelines and get any results?   Nate: Probably get some results but a bunch of junk.   Michael: It's not gonna be lending stuff.   Nate: And look, I mean, it's proprietary for the most part to lenders, because, you know, they don't want to give away their secret sauce. I mean, you know, nowadays, you know, residential lending is 100% a commodity, right? So there, they got to try and keep some proprietary nature to what they do and don't do. And then the other thing is the wind blows and they change their guidelines, their overlays will adjust, but you know, COVID hit, and people tightened up significantly.   So like, there were a lot of lenders even though Fannie Mae might allow it up to 80% cash out when COVID hit some lenders, because in order to reduce their risk, like shot, Max cash out loans down to like 65%, right, because they didn't want to take on that risk given the uncertainty in the market.   Michael: Right, right. Right. Yeah, I'd seen that happen, too. All right, cool. So let's get back on the rails here and talk about investing strategies for single family versus multi unit and then up to multifamily.   Nate: Yeah. So from a strategy perspective, multifamily is synonymous with either a buy and hold mentality, or in the residential world, you call it the BRRRR, right, the buy, renovate, rent, refi, repeat, that's very common as well. So the first strategy of just buying and holding without the other stuff is usually you're just getting permanent financing debt on something. It's what we call a stabilized asset, essentially, the occupancy of all the units is high, you know, definitionally, if that's a word,   Michael: It is now it is now   Nate: Just like multi unit, hopefully, yeah, find it in a a dictionary near you, or I'm sure media will pick up on it. But the bottom line is, like from an agency guidelines in residential in the multifamily world, there's just a lot more sort of restrictions out there. And from an occupancy and stabilization perspective, you need to be 90% occupied to be called stabilized in agency.   Michael: Isn't it 90 for 90.   Nate: Exactly. 90 for 90. You want to give the definition.   Michael: Yeah. So it's 90% occupied for the last 90 days. Right?   Nate: Exactly. Yep. So you have to season 90% occupancy for the last three months. And that will make you potentially eligible for like an agency financing and in the multifamily world, so that's sort of just straight down the middle, buy a property that stabilized cash flowing, well get a fixed rate, long term type loan.   Michael: Just quick question for you. So if I've got a five unit building multifamily, yep. But I have one vacancy. Now I'm 80% occupied. Because of that one vacancy, I'm up the creek, I need to basically be 100% occupied because I can't possibly mathematically be 90% occupied.   Nate: So a couple of things. The agency world of multifamily is not well suited for smaller what we call smaller balanced loans, smaller units, somewhat smaller unit size, more smaller dollar size. So typically, a minimum agency loan is about a million dollars, give or take some variations. Sometimes it's higher, even. But that usually will remove out five unit properties, at least in secondary and tertiary markets, your primary cities, you know, you you go to a boss in New York City, Miami, I mean, you're sure you get plenty of five units that are way more than a million dollars and million dollar loan amounts. But for the most part, the five unit, maybe 10 unit is usually best suited for a local bank, because they'll use some common sense. Like you said in the math, four out of five is 80. Not hit 90. But I mean, in reality that's pretty close to being stabilized without being 100% occupied. So there are options for it. But it gets a little tough for agency to wrap their heads around smaller unit types.   Michael: Okay, man us little guys scraping the bottom of the barrel, it’s tough man tough.   Nate: Hey, look, I might go to traditional local banks, then it goes through agency stuff. So when I say agency debt multifamily, it's the same government sponsored entities that I just said a minute ago for residential. It's Fannie and Freddie and FHA, essentially, are the main, you know, agency, as they call them multifamily lenders hope that's not too confusing. But Fannie and Freddie and FHA, are in both buckets, and USDA, technically, as well. So they're just completely different products. And they look at things very differently.   The other strategy, instead of getting just down the middle cash flowing in permanent type options, is a property that needs value add. So that's the other option. You know, whether it's larger unit size complexes, as I'll call them, or smaller multifamily assets, you know, you don't have to have a stabilized property, you don't have to be 90 for 90. bridge loan options, as well as what is called will allow you to take loans without the supporting cash flow or occupancy, then more of a permanent financing option would would require of you.   So that's what we specialize in at least one capital is bridge loans. So we can do what's called, you know, low to no occupancy and not having an occupancy requirement. We have one version of the product for that. And we have our own, not to get confusing, bridge loan stabilized type product, but our definition of stabilized is 75 to 80% occupancy, so it gives that buffer and then what we specialize in as well is Fannie and Freddie fall out, which means somebody went to try and get a Fannie Freddie loan on a multifamily asset, and maybe it was they didn't quite have 90 for 90 or some of the other nuanced guidelines in the multifamily agency world, it fell out, it might not mean it won't fit in there eventually. But at this moment in time, it couldn't qualify for it. So they'll take a bridge loan, our stabilized bridge 75 to 80 plus occupancy to lease up the asset, or season the financials, and so on and so forth.   So that's sort of the two options of there's a value add, which uses a bridge loan type of play, or there's a permanent financing option, which is more of your long term debt.   Michael: And so just to recap, if I'm a multifamily investor, five units plus and I want to go buy a building, I can go buy a totally vacant building that has no occupants that needs a ton of work, and I'm gonna do some value add to it, there's a solution for me there. Or if I find a building that is 75% 80%, occupied, but maybe needs some rehab work done or is a little bit dilapidated. I can also go buy that building, and there's an option for me there as well.   Nate: 100%, you just got to go to Lima one.com. And we got you!   Michael: awesome.   Nate: Let me bridge this. Mike, can I talk about some of the things that just differ from investing in single family to multifamily? Is that cool?   Michael: Absolutely would love that.   Nate: Cool. So we talked a lot about the debt, I'm done. I'm done with that for now,   Michael: No more debt talk.   Nate: But a couple of different topics that are different. First is construction. So you would think you renovate a single family asset, it's no different, it's got X amount of walls and studs are not you know, whatever it is different. It can be very different in that usually I will not usually, but almost always code is different. You know, so the permit process that are different. So you need to be very cognizant of what the requirements are of now a commercial asset five plus units, I'm specifically saying versus residential, because the code is different.   That usually means you're getting a different type of contractor or GC to run the project. Because you have to know the code as well like things that pop up that people don't think of as parking spaces, different egress, which is you know, fire escape options, things of that nature can be very different in construction. And the other thing you got to keep in mind me do like renovations on multifamily, especially if you're talking the little bit middle to larger unit size is you want to have consistency in what you're doing with the product.   So you don't want to like you know, win single family on a single family asset. Let's say you know, the stove broke, okay, we just go to Home Depot or Lowe's and buy a stove, no big deal. You know, it's just what I need. But in the multifamily realm you want to think it through if you have a larger complex, because you're going to have to replace multiple stoves. Or if you're good, you don't want to replace the whole stove, you want to replace parts of it. So you want to get the consistent type of product, so that when the top burners break, you have the same type of materials to go get to fix it, making it a lot easier on the maintenance of it.   So a couple of just different reasons why the construction aspect is different in multifamily than single family.   Michael: Yeah, quick, just quick anecdote with regard to the code. I mean, you couldn't be more spot on I've talked about on a prior episode, but I'll share with you I was I'm doing in the midst of redevelopment project right now converting commercial space into residential. And I went to convert one of the floors and they're like, yeah, okay, cool. Um, your permits are approved, but you got to put it in an elevator for ADA.   But, and I was like, there's got to be another way around this. And like, well, if you convert the bottom floor to then you'll have ADA compliance. And you don't have to put an elevator, but you got to put it in a sprinkler system.   Nate: I mean, you hit the nail on the head look right now, because of the demands and lack of inventory in multifamily as well. A lot of people like to do an adaptive reuse, play in redevelopment play like you're referencing, which essentially take a different asset class, whether it's like industrial office, whatever hotel even and converted to residential multifamily. I can tell you that. I'm sorry. I hope I don't scare you, Mike. But most of the time, what we see is the ending budgets and costs, you have to expand to reposition those assets from that asset class to now residential multifamily. It's very hard to do it and be on point with the budget because of all these different requirements, man, so I'm hoping I'm not jinxing that deal for you, my man.   Michael: No, no, not at all. This project has gotten so far off the rails and so far off budget when it's done, I'll have to do a whole episode about it. But basically, without getting too deep into I had two fires in the building during the course of construction. So insurance got about I mean, it's just been a frickin nightmare. It's now starting to get pretty close to completion. But now you're so right. There's so many things that pop up unknowns that nobody could have predicted at the time. It's really, really hard. I probably will not be doing another one of these.   Nate: And they're so attractive because any pro forma on an adaptive reuse pilot, you know, you're your chief. So there is some more margin for error because they look really good. And you can buy them at a lower basis, as you'll say,   Michael: Right? Right.   Nate: But they're they're tough to navigate through. But I would tell you, man, you know, you get through this one successfully, you'll have much more knowledge to actually be better at the next one as scary as that may seem. And I need to do another one, my man. So   Michael: I know. I know. We'll have we'll have to chat offline about how to get some financing done because the lender I'm working with is just such a pain in my side. So   Nate: Yep,   Michael: We'll, we'll chat.   Nate: We'll do we'll do my friend. So another just couple more real quick. The the first one I'll say of differentiation from single to multifamily is your tenants, right? So like, okay, I own one unit, a single family home, I can put anybody in there I want because doesn't matter like the neighbor, I probably don't own the property next door. So I could put in a tenant that I don't have to screen as much. And they could cause a lot of ruckus. And yeah, it's a headache, but it's not gonna affect the rest of the asset outside of potential damage to it.   But in a multifamily realm, you have to be cognizant of what you call your tenant base, like, what is the sort of profile of the tenants that you have in an asset? And you have to be very mindful of that. And so when you look at, okay, I think I can get x rents on these units. Well, does that fit the other demographics that have the tenant base that's in there now, and this is a lot of the challenges even on five and 10 unit, you know, in that range properties that people don't think of, because they'll see Yeah, all right, a 1200 square foot apartment, very similar vintage, which means age and sort of style might rent for 1200. But it might be a little bit out of town. And it might be all, you know, higher end type of tenants, if you will, I don't know if that's the right way to describe it. But if your existing tenant base might not be of that caliber, it's gonna be really hard to take somebody of the a class type property and put them in, when the surrounding tenants are making a lot of noise.   I mean, one way that I'll probably politically correct for some not as upper echelon tenants is the elements that you can have in some tenant bases, you can't really get away at times. So like, if you're investing in an asset that's infested with gangs around them, it's hard to get those gangs out of there. So you have to be cognizant of who your tenant base is now. And is that going to work as you you know, move new tenants in it. And just be cognizant that essentially, everybody's sharing walls. And so if they're not of similar, you know, sort of demographics, per se, you know, we're not trying to redline Don't get me wrong there. But it just might not always work as easily as you will think.   And then, you know, the worst thing you have is then vacancies or people that don't pay as a result, because they move out because they're mad that you know, they're just not the right fit for them. Yeah. So another variation that is different.   Michael: It's such a good point. And something also I want to point out and kind of piggyback off that is, when I talked to people about this all the time, when making the jump from single family to multifamily, they might be evaluating a single family home at sale prices to 25 to 25,000 rents for two grand a month, versus they see a four Plex on the market for 150 that rents for 2000 a month, because each unit rents for 500 bucks, those are two very different types of tenants and two very different types of assets.   And people see that for you. And like oh my god, the cash flow is amazing. But that person renting that $500 a month unit is going to be a very different person than who's going to be renting that $2,000 a month single family. So super important to keep that in mind as well. We are getting long in the tooth here. And we've got so much more to talk about. We're gonna have to have you back on and pick up this conversation where we left off because this has been awesome.   Nate: Hey, last thing I'll say on the topic of single family to multifamily, you can do it. I don't want to scare you in any of this. There's great multifamily deals and as long as you do it diligently and if you don't know what you're doing, you can certainly research it but find a mentor, find a mentor near you, and they will help you along the way because there's a lot of things you can't read about investing in multifamily solve it, it's a self learned by experience.   So be diligent about your decisions. And if you don't have that experience, you can read up as much as you can, that will certainly help you but also find a mentor to help you help you get into it and know how to navigate through some of these deals, strategies and challenges per se.   Michael: Yeah, and go find a mentor who's missing a couple teeth that means they got him kicked in at least a couple times.   Nate: I love it. I love it my style too.   Michael: Awesome, Nate well thanks so much for hanging out with us again man.   Nate: Super appreciate it.   Michael: This was awesome and always always a pleasure and so looking forward to doing it again because we've got a lot more to unpack here.   Nate: Thank you appreciate you having me on and I hope your listeners get some value out of it.   Michael: Certainly more to come totally take care man.   Alrighty, everybody that was our show. A big big big thanks to Nate use a lot of fun to have on the show and we look so forward to having him again, when we can pick up the conversation and dive more into some multifamily asset investing. If you'd like the episode, please feel free to leave us a rating and review wherever it is. Listen, your podcasts those are super helpful for us and getting our show ranked. And as always, if you want to hear a certain episode idea, have a suggestion, leave us a comment and we can look at making an episode on that particular topic. Thanks so much for listening and happy investing.

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