Multi Family Exit Strategy

[Jeff Jenkins]

It seems most lenders are only providing 20-30 year amortized loans with either a 5,7, or 10 year balloon, and most of which have prepayment penalties. What is the exit strategy under these circumstances?

I was under the impression it would have been a straight 25-30 year amortization with no balloon or penalties.

The goal with my first property is to buy stabilized, and then sell or refinance after 2-3 years, pay back the original loan and become a more credible lender with the potential to do more lucrative deals.

[DeMarco S]

Hi Jeff,

I work with GSE mortgage loans for Multifamily deals. Most of the mortgage loans are done with a 30-year amortization and a 5,7, or 10 year term. As the borrower reaches near the end of the term I've seen two common paths:

1) The Borrower may do a cash-out refinance, provided that loan proceeds exceed the unpaid balance ("UPB"). This positions the borrower to have the UPB paid off and have excess cash for reinvestment into the subject asset to cover capital expenditures and/or any deferred maintance. It also positions the Borrower to invest in other assets.

2) The Borrower may choose to sell the asset to pay off the UPB and take home whatever is in excess of the UPB (a profit).

Without going into extreme detail, generally speaking the prepayment penalties are intended to maintain the yield benefit from doing the loan (aka "Yield Maintenance"). Again, this is just the general idea.

I hope this in some way helpful.