Resilient assets and renovation potential give investors the room to grow on their own terms
Diversity is the key to any healthy real estate investment portfolio. Location, property type and unit count are all ways that your investor clients can protect themselves from inflation and any downturn that a specific segment of the market may experience. Multifamily properties can offer investors that diversity they are looking for in the industry.
Timing and preparation are two keys when making the leap to multifamily investing, but a broker can also be an important piece and serve a trusted asset that guides their client into a great deal that can benefit both parties in the short-term and long-term.
Multifamily bridge loans are a positive and manageable first step as investors try to get their bearings as it pertains to handling assets with a higher unit count. The bridge loan aspect offers a much shorter term with a potential rehab budget component so the investor can spend a year to three years making improvements and deciding if a long-term hold is going to be in their best interest.
Multifamily means resilience
When making a pros and cons list of why a broker’s client should add a multifamily property to their portfolio with a bridge loan, the resilience and recession proofing is where every conversation should start.
Higher unit counts lead to more tenants which breeds more rental income for the borrower. This fact alone is why this property type is so strong against recessionary periods. While most single-family assets may struggle, affordable multifamily housing becomes a very appealing option for a lot of potential tenants hitting the market. When the market and economy reach a point where buying a property is out of the question for most of the country, they quickly pivot to renting.
Also, in the current economy where there has been a housing shortage of roughly 4 million homes, these multifamily properties have become the enticing option while the supply catches up, prices become more reasonable, and buyers can re-enter the market.
There will always be a pool of renters looking to take advantage of the benefits a high-unit count multifamily property can provide, and if a broker and investor can get on the same page and secure these properties, it becomes a clear win-win for the partnership.
Value-add appeal
With a multifamily bridge loan, it is very common that a renovation budget is a component of these types of loans. If an investor wants to hold this asset long-term but realizes that parts of the property may need a facelift, this is the perfect option.
The goal for any multifamily investor that is performing property renovations is to achieve a level of consistency across all units. Whether that be paint, fixtures or amenities, brokers can advise that an investor ensures whatever they want to fix or improve, they make sure they budget accordingly and can do that across all units.
It is imperative that brokers express to their clients that they go into these multifamily bridge loans with a plan in place because being intentional about adding value through renovations can make a huge impact from a monetary perspective.
The broker can choose the right path based on their investment goals and either sell this property after the bridge loan is complete at a higher value, or with the work the borrower completed there is the possibility to start listing these units at a higher rental income and then refinance to a long-term loan in a much stronger position due to the work the client has put in.
Brokers can also recommend that the investor client does their best to fill as many units as possible before requesting the refinance from a lender as this will ensure better terms and leverages for the borrower. There’s also ample time with a bridge loan to make operational improvements to the multifamily property itself so it can become a well-oiled machine from a rent collection, work order and tenant dispute perspective so the overall experience from start to finish improves and is more likely to attract potential renters.
Bridging the gap
By far one of the most important aspects of the multifamily bridge loan is the runway it can provide an investor client when deciding their next moves in the real estate investment space. Flexibility is paramount for every successful investor, and with a loan term in the 12-36 month range, the fact that an investor is not tied to a long-term loan (typically 30 years) can be a major advantage.
If there is no renovation necessary, this is an opportunity for the borrower to collect rental income for a few years while letting the market dictate their next move. It allows for the ability to find another short-term bridge loan if the property inevitably needs rehab, or if the market cooperates, the borrower can be much more confident refinancing into a long-term option and receiving a lower rate and higher leverage from a lender.
A broker has the ability to check in with their client on a monthly basis and either gauge the success of the current bridge loan or provide an update on what the latest market trends are. This approach allows the broker to be a part of the plan and hopefully a part of the next transaction.
Although providing a high level of customer service is step one for brokers in the industry, the commission component is vital as well. A broker this is involved in multiple multifamily transactions sets themselves up to be financially rewarded and opens up the possibility of referral business.
Connect with clients today
Multifamily bridge lending is an opportunity for both brokers and investors to align strategy with flexibility, income generation, and long-term growth. In an environment where uncertainty and market shifts are increasingly common, the ability to secure a resilient asset, implement a clear value-add plan, and maintain optionality through a shorter loan term is a powerful combination.
For brokers, this is more than just a financing solution, it’s a pathway to becoming a trusted advisor. By guiding clients through the nuances of multifamily investing, from acquisition to stabilization and eventual exit, brokers position themselves at the center of their clients’ success. When discussing client evolution and next steps in the industry, being confident when explaining the advantages a multifamily bridge loan provides can be a big win for both parties moving forward.
This article was provided by RCN Capital
