Flip and Danny compare loan offers for a 48-unit apartment deal, weighing recourse terms, rates from 4.61% to 6.75%, amortization structures, and prepayment penalties. They pick the option with the fewest restrictions and lowest penalties, showing why the best loan depends on your specific deal.
Questions this video answers
A 48‑unit multifamily property.
77%, 80%, 75%, and 70%.
4.61% to 6.75%.
Some options were five‑year amortization; others were 25‑year with one year interest‑only; one option was interest‑only (term not fully specified).
One option had a 12‑month minimum interest prepayment; other penalties were stated as 5%, 4%, 3%, 2%, and 1% depending on exit timing.
Hey, everybody. Flip and Danny here, founders of the Freedom Real Estate Group family of companies. And welcome to another episode of our.
Podcast, which is called Freedom through Passive Income.
That's right. And today's episode is entitled what loan is Best?
Yeah.
Yeah.
What loan's best? Flippy.
So there's lots of different loan options when acquiring a property.
Yeah.
So you got private money, interest only, hard money, bridge loan, bank loans, the guy down the street. And the list goes on. Yeah. And on and on. But the most important thing. And you can write this down, make it a tattoo. If it's a deal, the money is always there.
That's right. So if you find a deal and you're worried about finding the money, don't worry about that. Just go find the deal. The money will be there.
Yep.
Somewhere, somehow. And if you have a deal and you need the money, you can always just bring to us.
Actually, somebody said, hey, I'm thinking about being a real estate investor. What do you think I should do? And I said, well, take your first step. And I said, well, what's the first step? Is to find a property.
Mm.
And go from there.
Yes, exactly Right.
You'll figure it out.
Yep, that's right. In fact, we are reached out. This is just a. I should probably put this on the live episode, but somebody had reached out to us to do a JV deal with them, and it turns out that they just feel they're. They're still too new to the space. They're getting really nervous about it, and they're deciding, hey. Or they're exploring, what if we just wholesale it? And so they're gonna possibly wholesale it to us. So, Ken, our underwriter, is actually evaluating the deal today.
Wow. And you learned that the same time I did.
And we'll include that on the live episode, if I remember it. So there's lots of factors that you want to look at when you are looking at a loan. So you find this deal, you want to do it. You're going to reach out to a bunch of lenders, you're going to reach out to a broker. Just. It depends. Sorry, excuse me. It depends on your network as to who you reach out to first. We have lender relationships, and we have a broker relationship for the particular deal that we're going to talk about right now, because we like to talk about case studies whenever we can when we're teaching something. We had this 48 unit, and we reached out to a broker to explore multiple lending options for us. And this is a perfect example for this video so there's lots of factors that we were looking at when we were presented the loan options. Some of them were the prepayment penalty, the cost of the loan, meaning the points and the fees, the term of the loan, how many years, how many years of that was interest only versus an actual principal and interest payment, the rehab draws, how did they work, what did they cost, were they incurring interest and what were the interest rates? So those were some of the things that we are looking at. And we actually brought the sheet, I went into my email, found it, printed it out and these were the exact options that we had when we were deciding which option to go with for the 48 unit that we're closing on here soon, might have closed on it by the time this one airs, who knows. So I just wanted to share some of the things. So some of the things I circled are things that we evaluated when we were choosing the loan. So the very first one that I circled was non recourse versus recourse. Three of our options were recourse loans, one was a non recourse loan. And I'm going to let Flip explain what that means.
Yes. So what a recourse loan means is that the lender has the ability to go after the actual borrower and hold them liable. So if anything goes south on the deal, the lender will then if the property, so say it's a million dollar loan, okay. And something goes south on the deal and the property is not worth a million dollars, they can go after the, they have the ability, I'll just say this, they have the ability to go after the borrower for whatever's left to cover whatever the amount that's going to make, you know, for the loan. So if it's a million dollars and the Property's only worth $750,000, they'll go after the borrower for that $250,000 non recourse loans, they do not have that ability. So if they something goes south and it's a million dollar loan, but the property is only worth $750,000, it's too bad, so sad. The lender now incurs a loan loss so they can't go after the borrower.
Yes, thank you for that explanation. So three were recourse, one was non recourse, then the LTV. So there was a 77%, an 80%, a 75%, a 70%. So that's essentially how much they're going to allow us to borrow against the property. So if It's a million dollar property and it's a 70% loan to value, then they're going to allow us to borrow up to $700,000 if there's 75% LTV and then it'd be $750,000 and so on. Most people like to borrow as much as possible when they evaluating, but every single loan is different because that wasn't one of the reasons we chose the loan we did because there's actually one that was higher. We could have borrowed more in another option, but we didn't choose it. And we'll explain why. The interest rate, our interest rates were anywhere from 4.61 to 6.75%. The terms, pretty much all of them were five years amortization. One was interest only, the other three were 25 years with one year interest only. The payment penalty one was 12 month interest and the others were 5%, 4%, 3%, 2%, 1%. So depending on when you wanted to exit out of that deal, you would have that percentage of a prepayment penalty loan guarantors. So this means can we borrow on our own or do we need to bring in somebody else? There's reserves, there's liquidity, there's net worth. That always factor into your ability to get a loan on one of these large properties. And so if it's more than what you have any of those three buckets, you have to bring in somebody else. So on this list is did you and I, were we able to do it all by ourselves or did we have to bring in somebody else? On three of them we had to bring in Arianne and Chris, which we did the 56 unit with them as well because we were brand new, didn't know what we were doing. We just needed experience on our side so they could come in with us on this one as well. On three of the loans, one of them we could do on our own. Another one, by the time we got this loan sheet it was fully vetted. They already had the committee review our financials and everything like that. It was ready and raring to go. The other three, they needed more formal presentation. It was going to take a little bit longer for them to go through all the docs that we had submitted for us to get an answer back. And then I want to bring up the renovation. So on these pages there's a summary. On this first one I just circled the things that I wanted to talk about in this video. This other one is sources and uses. And so it's going to just. It breaks down all the numbers based on the first sheet in the summary so that you can see what it looks like in terms of what you're going to be paying and the total cost overall and how much you'll be borrowing. So the one other thing that I wanted to talk about here was the draws. So when you're evaluating how the draws work, how many times can you draw? What does it cost to draw? Am I paying interest on the money that we're drawing? So on our 48 unit we have a $950,000 estimated CapEx budget. A lot of that is also reserves and a contingency. So we don't want to be paying interest on that bucket of money unless we're actually taking it and using it. There was only one loan that allowed us to only have to pay interest if we took the draw. So that's $950,000 that they're saying that we can have. We don't have to pay interest unless we take it out. So that was huge impact on the numbers. That same option was the one that you and had. Could do it on our own. We didn't have to bring in anybody else because bringing somebody else in just means it might take longer to get approved. It was also the one with the lowest prepayment. It had 12 month minimum interest. It didn't have that 5, 4, 3, 2, 1 prepayment penalty. And so all of it just all of those factors helped us make the decision on this loan. So that's what you have to do is not every. You can't say universal. This loan is best.
Right?
And that's kind of the joke about this is, you know, we can't answer that question. It depends and everybody hates the answer. It depends on the deal. So we just wanted to give you a little case study example of how we evaluated what we chose for our 48 unit.
Well, I was looking at the loan guarantors here. You said we didn't have to bring anyone in, but this one says Phil. Who's Phil?
Hi Phil.
Danny and Phil. Well, we hope you enjoyed this episode. Make sure you go over to our website, freedomcapitalinvestments.com to join our investor club again. You're going to learn more things there that we cannot talk about anywhere else on the social medias or anything like that. But we're still in all those other channels and all those other networks and medias and whatever and whatnot. But we like to end all of our episodes with invest smart, Live happy. Bye everybody.
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