I want to talk about a story of two loans. This was something I was going through in early 2018. It serves to highlight some of the differences between single-family investing and multi-family investing. Now, I’ve been investing in single-family for many years. Since 2012, I’ve done well over a hundred projects at this point. I’m also a multi-family investor, and I’ve done many multi-investment projects.
At this particular time in early 2018, I was going through a refinance on three rental houses that I had renovated, fixed up, put residents in, and wanted to refi out of some private loans I had on those. I had that rental property, small little portfolio being refinanced. At the same time, I was buying a 130-unit apartment complex with a $4 million-plus loan on it, so I had these two things going on at the same time.
It was really interesting for me because it was such a great highlight of some of the differences between the two. For example, on the single-family refinance, they wanted to see everything. The bank wanted to see everything. The last two or three years of W-2 income, I can’t remember which it was, they wanted to see obviously rent roll for the property. They wanted to see my tax returns. They wanted to see all the financials related to the property, which is fine. That’s to be expected. It was a very difficult process, I would say, for what I would call relatively small transaction sum. It was like a $500,000 loan for all three houses, so relatively small transaction.
At the same time you got this $4 million loan happening on a larger hundred-plus unit multi-family project, and all that they wanted to see on that project was the financials of the property. They wanted to see the rent roll and the trailing, 12 financials, so the profit and loss statement. They wanted to see my balance sheet and my partner’s balance sheet, and they wanted to see some liquidity between myself and my partner on that deal. That was really about it. I mean, they did run my credit score, but really, the takeaway here from this story is that on that larger property, it was actually much easier to get that loan, a $4 million loan, than was to refinance a couple of single-family houses.
Couple of other things. Those single-family houses are recourse debt, meaning that if the note fails to perform, I’m on the hook personally for those houses. The larger loan on the multi-family project, $4 million-plus loan is nonrecourse, so if Armageddon happened, the worst thing happened, the bank will take the keys back and take the property back, but they won’t come after me or my partner or any principles personally, which is a huge advantage in multi-family investing, and it’s the reason why people can have $50 million in debt on multi-family properties and be able to sleep at night because of this thing called nonrecourse. Huge difference between investing in single-family and multi-family.
The overall takeaway on that is that it was just actually easier to get. I’ve been an entrepreneur now for a number of years without a W-2 income from a big corporation. I do have a small W-2 income through one of my companies, but a lot of my income is rental income, capital gains, things like that, and so I don’t have your standard W-2 job. That almost didn’t matter to this larger project. They’re looking at balance sheet, liquidity, and the asset, and they are loaning against the asset, and it’s actually easier. I wanted to highlight a real life example because when I was learning this process, I would hear from people that had bought multi-family properties that the loans are actually easier on these huge projects, and so it was interesting for me to actually go through that and see it real-time with two actual projects going on at the same time and see that, indeed, it was easier in many ways to get a loan on the larger project.
I just wanted to share a little story there about my experience getting a larger loan in multi-family and smaller loan in single-family and some of the differences between the two.
Thank you.
