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Five Tips to Get the Most Cash Out of Your Small Rental Property

VP Steve Johnson

If you own a small multifamily property, it's good to be a landlord right now. For the better part of a decade, the multifamily market has been delivering lower vacancies and higher rent growth. Post-recession, 2016 was the strongest year yet for the rental market. With the economy nearing full employment and wages continuing to rise, we expect continued growth in demand for multifamily units for the remainder of 2017.

Since the end of 2009, apartment values have risen 143 percent, which presents owners of small apartment communities with an opportunity to capture these market improvements and unlock the equity in their rental properties by refinancing. With strong demand, abundant capital sources and historically low interest rates, this is a great time for a mortgage reboot, especially if your loan was originated in more difficult economic times.

With the right preparation, Freddie Mac can help you maximize your loan proceeds. We operate in every market, with regionally-based producers who understand the impact that local economic conditions have on small apartment properties. And we're committed to financing more small balance loans that keep small rental communities competitive and affordable for working families.

Here are our five tips to help owners of small rental properties put the most cash in their pockets:

  1. Aim for Accuracy. Keeping accurate financial statements for your property is essential. If your records are spotty, it's difficult for lenders to accurately size a loan, which could reduce the cash you take away from the deal. To get the most bang for your buck, it's best to have three years of historical annual operating financial statements and monthly rent rolls. If you have made any capital improvements in the past, be sure to include explanations on your statements. (By the way, we may be able to do a deal even without three full years of documents if you can show your business is consistently managed to high professional standards.)
  2. Show Your Property Some Love. Long-term ownership and regular property maintenance demonstrate commitment and pride of ownership. It also goes a long way toward getting you the best loan terms. A lender looks for properties that are clean and well-maintained with limited deferred maintenance. Serious deferred maintenance issues mean your lender may require you to escrow a portion of your proceeds to cover repairs, reducing your cash in hand after closing.
  3. Strive for Stability. Volatility in expenses, income or occupancy makes it difficult for lenders to project underwritten income. Strive for consistent operations and avoid months with large spikes in vacancies or expenses. If you do have an isolated spike in expenses or a dip in occupancy, be sure you can provide a justification.
  4. Don't Count Out Affordable Properties. While some lenders might shy away from cash-outs on older B- and C-class properties with lower-than-market-rate rents, Freddie Mac Multifamily does not. Over 80 percent of our small balance loan business is focused on financing affordable rental housing for working people making 80 percent or less of their area median income. This means a cash-out refinance is possible as long as your property is safe, provides a stable cash flow and is well maintained. It's also important that the owner has sufficient net worth, liquidity and a proven track record. It may interest you to know that architectural detail and property "character" can be competitive advantages in some cases!
  5. Take a Fresh Look. Even if you already have a go-to source for financing, now is a good time for you to evaluate new funding sources. You owe it to your business, especially if you have owned your property for at least three years and it has experienced rent growth, or if you have made improvements to boost rental potential.

At Freddie Mac Multifamily, we're changing the way small apartment loans are funded. We're committed to giving you more choices, better terms and a simpler loan process. It's part of our mission to support affordable rental housing. It's how we financed more than $3.7 billion in small loans last year alone.

Now is the time for owners of small rental properties to take advantage of Freddie Mac's low mortgage rates. Coupled with a few smart strategies, you can put more cash in your pockets while keeping more affordable workforce housing in your community. Learn more about our small balance loans or request a quote.


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