As the economy sours, many multifamily real estate investors may be nervous — especially if they have a loan about to mature. With interest rates on the rise, financing is becoming more expensive. But, to avoid a massive balloon payment, an investor may need to refinance now in order to avoid selling the property at a loss, or worse, defaulting on an existing loan.

This article explores five steps multifamily investors — whether experienced or new to the game — should take when seeking out your next refi.

And don't worry — just because interest rates are higher doesn't mean you can't find a great financing opportunity.

What Are the Pros and Cons of Refinancing During a Recession?

But before we get into those five steps, let's set the table, so to speak. Why should you even refinance now?

After all, when the economy is doing well, refinancing can make a lot of sense. An investor taking advantage of lower interest rates can improve a property's cash flows, and more lenders are likely willing to compete with each other by offering better loan terms.

In a downturn, though, preemptively refinancing your multifamily property may not seem wise, or even logical. However, there are some compelling reasons to do so — even if your note isn't maturing in the next few months.

Pros of Refinancing in a Recession

• Refinancing on your own timeline can lock in a favorable interest rate — even when rates are on the rise.
• Getting a new loan can defer a balloon payment that may be otherwise difficult to manage.
• A refinance could add value when you plan to sell — particularly if you get a strong financing package that is assumable.
• Refinancing can help you avoid defaulting on debt.

Cons of Refinancing in a Recession

• If handled poorly, a refinance could lead to higher monthly payments in a time of decreasing cash flows.
• Prepayment penalties, if present on your existing loan, could make refinancing less financially viable.
• If time is a significant factor, you may not find the best refinancing available for your multifamily asset.

Getting the Timing Right

When searching for a refinance in these times of instability, it is important to take into account several factors. For example, interest rates and market conditions play a big role. If interest rates are growing — and you expect them to continue growing — now may be the perfect time to refinance, even if your back isn't against the wall in terms of your loan maturity date.

Finding the Right Multifamily Refinancing Loan

Finding the right loan and lender can be a daunting task in an economic downturn, especially if timing's a factor. But with the right information, you can make smart choices when it comes to finding a refinancing partner. Here are five tips to help you find the best loan for your needs:

1. Do Your Homework

Before starting your search, make sure you have all of the information necessary to evaluate potential lenders. This includes checking ratings and reviews online, reaching out through your professional and personal networks, and reviewing company profiles.

2. Consider Alternatives

If one lender (or one type of lender) doesn't fit your specific criteria — for example, because of interest rates or terms — consider widening your search until you find a refinance that meets both your needs and budget constraints.

3. Shop Around

This is, without a doubt, one of the most important keys to a positive, successful refinance. Don't just take the first offer that comes along. And don't just go to the same lender you've always gone to. By comparing loan packages, you will get a feel for what financing is available — and which of your options can work best for you.

This is something we excel at. Add your details to the form below, and we'll shop your refi around for you, free of charge.

4. Be Upfront and Proactive

Prepare yourself to answer tough questions. This could be about anything from your property's value to your credit score. Look at your situation and your asset from an outside perspective. If you were offering to refinance a loan for your property, what hangups might you have? It's far better to address any of these potential complications early and clearly.

5. Get Professional Help

Let's be honest, investing in a multifamily community is already pretty tough work even on the good days. Add the stress and time needed to secure financing, and it's easy to see how a brokerage can be useful.

Even if you've got the time to burn, are you sure you have the network and the reach? This is another area Janover jumps in to help you at no cost. Our experienced loan advisory team has thousands of lenders in our Rolodex, and we leverage that to secure the best terms for you.

How to Get the Best Financing Terms

When searching for a refinancing in an economic downturn, it's important to find the best terms. This can be difficult, as interest rates are high and many lenders are tight on credit restrictions. Here are some tips to help you source the best financing terms:

Know Your Credit Score

A higher credit score means that you're likely to repay a loan on time and without any difficulty. What if your credit isn't perfect, though? There are a couple of options.

First, if your credit score is borderline — say, right near the threshold at which most lenders will offer better terms — it may be smart to hold off for a couple months while working to improve your score. There are concrete steps you can take, from paying off any outstanding tax or other financial burdens, to showing a consistent pattern of good borrower behavior, even if just for a home loan or a personal credit card.

If your credit score is really low, however, you may wish to seek alternative forms of financing that have less stringent borrower credit requirements. CMBS loans, for example, are often available even to borrowers with poor credit, so long as the asset itself is strong.

Assess Your Needs

It's likely obvious, but before contacting any lenders, do your research first. See what interest rates are doing, of course, and also figure out what specific loan terms you're looking for. Need a fully amortizing loan? How about something non-recourse? Is cross collateralization a possibility?

Of course, this isn't easy to do — nor is it fast. Lenders can be far from transparent about what terms might be available for you until you're actually well into the application process itself — which, as you know, can be incredibly time consuming and different from lender to lender.

Janover solves for that. Just fill in a single form (down below), and we'll get your deal quoted from a number of interested lenders in record time.

Final Conclusion

Refinancing a multifamily property during a recession can be an important decision for both the property owner and the lender. By understanding your timeline, picking the right timing, and sourcing the best financing terms, you'll be taking tangible steps to ensure your community stays afloat now and in the future, whatever challenges it may hold.

Fill in your details below to get a free quote from our team of multifamily financing experts.