Banks are conservative. They want to make money on their loans, but they also want their loans repaid. They get burned when a market changes and those who have the loans on their properties cannot afford to pay the mortgage payments, leading to thousands of loans being jeopardized. This has been particularly true in the residential market as seen with the mortgage meltdown that occurred over the last few years.
It is no secret that in recent years banks have taken back many bad and unpaid loans. This has forced them to evaluate the type of properties they are willing to lend on. Being conservative is not enough anymore; banks also have to be smart. Their goal is to avoid future loss without sacrificing the interest income they can collect on their loans and put their money into the most stable investments.
In their evaluation, one thing has remained a constant for banks. Income-producing properties are less likely to be impacted by a softening market than single-family homes. This can primarily be attributed to the income the multifamily property produces. In recent years, most banks have drastically cut back on lending, except when it comes to lending on quality multifamily assets.
Although lending has slowed, banks realize that multifamily properties are an area where they have less risk of loss and can still make a good return on their loans because their investment is protected by the cashflow that the property generates and that when people cannot afford to buy a home, they move into an apartment, meaning there will always be a market for what multifamily properties offer. National lenders like Freddie Mac and Fannie Mae have been major players in the multifamily sector through the down economy, looking at it as a safe-haven for their investment dollars after getting burned in the residential home market.
Most investors are reaching the same conclusions as banks when it comes to multifamily properties. Investors are looking for less-risky real estate investments that still provide strong returns for their investment dollars. Our team has been aware of the stability and high potential of multifamily properties and has focused our operations on evaluating and acquiring high potential properties. We are always looking for like-minded people to join us. It’s okay to be conservative and avoid risk… but don’t forget to make a generous profit along the way!