Owning a small multifamily property has always had its benefits. Despite these benefits, people have shied away from owning property for almost a decade because the market has delivered low vacancies and higher rents. According to statistics, however, 2015 has been the strongest year for the rental market so far.
The values of apartment properties have skyrocketed up more than 120% since the end of 2009. Lenders have noticed these statistics and are changing their perspectives to meet a recent growing demand: owners of small apartment properties looking to take advantage of the market change by refinancing.
To put it simply, if you still own a small apartment property, 2016 is the year for you to make the most of a cash-out refinance.
If you want to receive the most money for your cash out, you need to make the correct preparations so the process runs smoothly. Don’t deny yourself a substantially lower cash amount for you your small apartment property.
Here are five tips to help maximize the amount of money you will receive:
- Always Aspire for Accuracy: Always Aspire for Accuracy: It is imperative that you always keep well-documented financial statements for your property. Irregular records will only penalize you in the end because lenders may have trouble accurately sizing a loan. This will cause a reduction in the amount of money you will receive from a deal. In order to optimize the amount of money you receive, be sure to have at least three y ears of historical operating financial statements and monthly rent rolls. This will ensure the process runs smoothly. Also keep in mind to you should be able to provide explanations on your statements if you were able to make any capital improvements in the past.
- Effectively Maintain Your Property: Going the extra mile to properly care for your property truly makes a difference in the eyes of a lender. A lender typically looks for communities that clean with limited deferred maintenance. If a lender is met with serious maintenance issues, you may be required to escrow a significant portion of your proceeds in order to cover repairs. Remember, you want to maximize your cash out. If you demonstrate pride in your property by effectively maintaining it, you have a better chance of receiving the best loan terms
- Stability Matters: Uncertain expenses, income, or occupancy is usually a red flag because it usually makes it difficult for any lender to project underwritten income. You should always aim for consistency and avoid months with large spikes in vacancy or other expenses. If you have experiences volatility in the past, do not fear. You should be fine if you can provide a reasonable justification.
- Don’t Pass Over Affordable Properties. While it is true that some lenders may shy away from cash-outs on older B- and C-class properties with lower than market rents, some do not. In fact, some lenders may jump at the opportunity as long as your small apartment property meets the “four S’s” of its credit standards:
- Safe: Minimal crime on site or in the area, good security, and a supportive and vigilant management team. Tip: It helps to periodically Google your property. If you are put off by what you see, there’s a good chance that the lenders are as well.
- Stable: Stable cash flow and timely capital expenditures.
- Structure: Your property should be well-maintained and in exceptional condition. Tip: Architectural detail can be a competitive advantage in your favor.
- Sponsor (owner): Sufficient net worth and liquidity, and a proven reliable history.
- Keep Your Options Open: You should always have your best interest in heart and strive for improvement. Even if you already have a reliable source for financing, you should still be searching for new funding sources. You owe it to your business as well as yourself, especially if you have owned your property for at least three years.