Discover how to get multifamily government funding for investors. You'll learn the details of how one of our Proteges, Brandon, got $57,530 in rehab funding from the local government, helping increase the value of his 18 unit multifamily property by hundreds of thousands. Every apartment investor needs to know how to get government funding for multifamily!
2 Main Types of Multifamily Government Funding
1. Fannie Mae/Freddie Mac Apartment Loans: When multifamily real estate investors think about government funding for apartments, they typically think of Fannie Mae or Freddie Mac apartment loans. These loans are federal government insured but provided by a standard local bank, as explained in this Multifamily Loan Comparison.
2. Local Government Rehab Loans: Although Fannie Mae and Freddie Mac apartment loans can be a good option for financing multifamily investments, the lesser known (and perhaps more helpful) government funding programs are local government rehab loans. Local rehab loans are an exciting option for multifamily real estate investors who have maintenance issues or who need to renovate their property. These loans are funded by local governments and one of our Proteges, Brandon, took advantage of the rehab loan offered by his local city government to fund the renovation of his 18-unit apartment building.
Brandon's Multifamily Journey
Brandon had been working for surveying company for the last 10 years and other than working for a property management company in his early twenties, he had no previous experience investing in multifamily real estate. At first, he considered investing in residential real estate but after discovering Commercial Property Advisors on YouTube, Brandon decided that more units under one roof was better. And because Brandon was inexperienced and he couldn't afford to make mistakes, he joined our Protege Program. We have mentored him through every step of this deal; finding the property, getting bank financing at a lower interest rate, attracting private investors, and implementing value add strategies.
Brandon's $1.15 Million 18 Unit Multifamily Investment
Brandon purchased an 18-unit apartment building in the northern Midwest for $1.15 million. That calculates to about $64,000 price per unit, which was below market value of $80,000-$100,000 per unit. It was a C-Class property in need of renovation but it was centrally located in the downtown area. The location and the instant equity initially made this a good deal for Brandon. And what made it even better was that the previous owner kept the rents low so there was rent upside potential as well. Brandon could increase 14 of the 18 units at least $200/unit. The other four units were already at fair market rent.
With our help, Brandon secured an amazing 6.25% rate on a 30 year amortized local bank loan. This covered 75% of the purchase but it required a 25% down payment.
Brandon didn’t have the entire $287,000 down payment but he could tap into $33,000 from home's equity, or HELOC. In order to cover the remaining $254,000, Brandon raised the money from two investors, following the apartment syndication strategies we taught him. His investors were co-workers that had been complaining about how much they were paying in taxes so Brandon presented them with a solution! He showed them how they could invest in his deal and take advantage of all the tax savings investing in multifamily real estate. Brandon structured 30% ownership plus a monthly asset management fee for managing the project while the investors put up 90% of the money.
Value Add Money
In order for Brandon to achieve his Pro Forma projections, he had to add value by renovating the property. With showed how to get money out of the seller and Brandon negotiated $35,000 cash credit from the seller at closing. But he still needed more money to finish the renovations.
Local Government Multifamily Rehab Loan
Brandon’s 18-unit apartment was a 120 year old building (inside and out) and in need of repairs. Following our instructions, he did quite a bit of digging and discovered that his property qualified for the city’s rental rehab loan program. This local government rehab loan was a stimulus loan used to revitalize neighborhoods, so it wasn't available for all multifamily properties in that city. This loan was specifically for C-Class neighborhoods that the city wanted to revitalize. And that's what you will oftentimes find in your area. The local government has a vested interest in revitalizing C-Class areas so they offer funding for investors to improve properties in those areas.
The terms of this local government funding program were incredible. Brandon borrowed $57,350 at 0% interest for the first seven months, and then it reverts to 3% interest for an eight-year term.
After Repaired Value
Brandon is using government money (and a seller credit) to renovate the interior and exterior of his property which ultimately increases the value. Once the repairs are completed and the property is stabilized with raised rents and quality tenants, a conservative estimated after repaired value is $1.7 million. With less than $100,000 in renovations and intelligent management, the value will be increased from $1.15 million to $1.7 million! And to benefit from that value increase, Brandon will do a cash out refinance within a few years and then use the proceeds to acquire another property to continue to build his commercial real estate portfolio.
Brandon's Multifamily Investing Lessons
Brandon faced several difficulties as an inexperienced commercial real estate investor; from learning the language of the business, to getting the deal under contract, to shopping for insurance and analyzing the inspection report. Brandon said that having a mentor has been an instrumental part of this whole deal. At his age he can’t afford to make a mistake, which is why he joined the Protégé program. And Brandon was a textbook protégé following all the steps as we walked him through the entire process.
“I couldn't have done that without the help of a mentor, you Peter. The structure that you laid out and how to present this deal, that's how I presented it to them.”
How to Attract Private Money Investors
Brandon was a brand new investor with no previous experience raising private money but he successfully syndicated $254,000. How did he do that? Well, when I asked him that question here’s what he said,
Step 1: Get a Mentor
When Brandon came to us, he said, "Peter, I'm 41 years old. I have very little in my retirement and I don't want to make a mistake." Every successful commercial real estate investor has a mentor.
Step 2: Find a Deal Worthy of Presenting to Investors
We have a training in our Protégé Program called, “Is my Deal Good Enough for an Investor?” You need to know if your deal can afford an investor. You can't put forth just any deal. Let's face it, deals on today's market don't have enough profit to pay the mortgage, pay the investors and pay you. There's just not enough room. You need to find an off-market deal, which Brandon did.
Step 3: Have a Presentation that Works
Brandon used the presentation we provided him through our mentoring program. Here’s a brief overview of that investor presentation:
- Title page and disclosures from the attorney.
- An agenda - provides a mind map of the presentation to help understand the information better.
- Investment strategy.
- Investment life cycle - Investors know from day one where the money goes, and then at day 30, all the way to how they get out. We take them through the entire cycle of the investment. This builds trust with potential investors and allowed Brandon to show his investors that he knows what he is doing even though this is his first deal.
- How investors are paid.
- Five ways we protect against a market downturn - we are being proactive in sharing with investors what can go wrong and how we will mitigate those risks. We know there there's some objections in today's market and we’re dealing with them upfront.
- Why invest in Apartments? We know why multi family real estate investing is a great vehicle for building wealth, but investors may not have all the reasons. Again, this helped Brandon build up credibility, rapport, and trust with investors even though he was a beginner.
- Understanding their goals - because every investment is not for every investor. So you must understand the investor's needs so we can put them with the right deal.
Step 4: Execute a Proven Process
The final step, after getting a mentor, finding a deal worthy of investors, and having a good presentation, is you must execute a proven process. Brandon executed the process perfectly. He didn’t need a degree from Harvard or a lot of cash. He just followed all the steps as we walked him through the entire process.
Multifamily Government Funding for Investors
While Fannie Mae Apartment Loans get the majority of attention from multifamily investors, local government rehab loans are incredibly powerful funding tools that every apartment investor should seek on every deal they do. And every successful multi family real estate investor has a mentor! Get your mentor here: Commercial Property Advisors Protege Program