Freddie Mac Offers Cheaper Apartment Loans – if You’ll Cap Rent
Freddie Mac, the mammoth backer of apartment loans, has instituted a new program to give owners better financing options in exchange for capping rent increases over the life of the loan.
Across the country, rent-control legislation has been gaining steam – according to the Wall Street Journal. Many property owners have dumped their properties in certain areas where rent control seems imminent.
At first glance, this new loan offering from Freddie Mac might not appear to be a solution that apartment owners care to take them up on. After all, forced rent caps for decades isn’t exactly an opportunity they’re champing at the bit for.
But, here’s the other side of it:
If rent control legislation rolls out in your area, you might be forced to cap rents – without the financial incentive from Freddie Mac. Taking advantage of this can help lock in lower rates and higher profits over the next few years, even if your profit potential might take a hit years down the road. It’s a calculated gamble either way, but low-cost financing is a carrot you should consider.
Freddie Mac’s timing for this new roll-out makes a lot of sense and can potentially appeal to owners more now than it did in the past few years. Middle tier rents raised 20% from 2012 to 2017, but rents have naturally slowed this year. If owners see the rental market remaining slow for a few years, the opportunity to obtain financing at below-market cost can be too appealing to pass up.
This initiative requires that owners obtaining these low-cost loans must have at least half of their units priced for a median-income or below, while 80% of their units must adhere to rent growth limits.
Creating affordably-priced units for the middle class – such as teachers and fire fighters – has been difficult for lawmakers to mandate. In the past few years, real estate investors have been more interested in creating luxury apartments, or buying up lower-end buildings, renovating them, and raising rents. This type of mandate helps solve this problem by offering owners potentially more profit with lower-cost loans while creating more affordable housing.
Our conclusion – it can be a gamble either way. If rent control comes to your area, you might be have a harder time turning a profit. However voluntarily participating can lock in more immediate profit, but be out of luck if the rents skyrocket and you can’t do the same.
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