Tip of the Week / How To Guide
StatePoint

If you own a small rental property – now, advice more than ever – it’s good to be you. For the better part of a decade, find a robust multifamily market has delivered low vacancies and higher rents.

Apartment values are up more than 120 percent since the end of 2009, sales according to Moody’s. Experts say that offers a great opportunity for owners of small apartment communities.

“Now is a great time to refinance, especially if your loan originated in more difficult economic times,” says David Brickman, Freddie Mac Multifamily executive vice president. “Multifamily market growth is ongoing and rates are still near historic lows. Without the right preparation, though, you could find yourself short-changed.”

To put the most cash in your pocket, consider these five tips from the experts at Freddie Mac Multifamily:

• Aim for accuracy: Keep accurate financial statements for your property. If your records are spotty, it’s difficult for lenders to accurately size a loan, which could reduce the cash you take away from the deal. To get the most bang for your buck, make sure you have at least three years of historical annual operating financial statements and monthly rent rolls. Include explanations on your statements for any past capital improvements.

• Show your property some love: Long-term ownership and regular property maintenance demonstrate commitment and pride of ownership. It also goes a long way towards getting you the best loan terms possible. A lender looks for clean, well-maintained communities. Overdue maintenance issues could mean your lender may require you to escrow a portion of your proceeds to cover repairs, reducing your cash in-hand after closing.

• Strive for stability: Volatility in expenses, income or occupancy makes it difficult for lenders to project underwritten income. Strive for consistent operations. If you do have an isolated spike in expenses or a dip in occupancy, be sure you can provide a justification.

• Don’t count out affordable properties: Some lenders might shy away from cash-outs on older properties with lower than market rents. Look for a lender who does not. For example, with Freddie Mac’s Small Balance Loan program, a cash-out refinance is possible as long as the property is safe, provides a stable cash flow, is well-maintained and the owner has sufficient net worth, liquidity and a proven track record. This mortgage offers flexibility, with a choice of fixed-rate and hybrid adjustable rate mortgages available.

• Take a Fresh Look. Even if you already have a go-to source for financing, now is a good time to evaluate alternatives, especially if you have owned your property for at least three years and it has experienced rent growth, or you have made improvements to boost rent potential.

To learn more about growing your rental portfolio, improving returns on existing assets, or meeting other financial goals, visit FreddieMac.com.

Owners of small rental properties should consider taking advantage of the current market. A few smart strategies can mean more cash in one’s pocket.

PHOTO SOURCE: (c) Christopher Meder – Fotolia.com