HUD Financing: Is It Right For Your Next Project?

Had a fantastic discussion with Rod Khleif about one of the most powerful—and challenging—financing tools in multifamily development: HUD financing. 💲🏗️

We often don't talk about it because it's a marathon, not a sprint. 🏃🏼🏃🏼‍♂️ While a typical HUD loan can take 6-12 months, my most recent deal took 13 months to close after we had to pivot from conventional financing. ⏳

The underwriting process is incredibly thorough, requiring everything from strong inventory projections to specialized reports like a "blast radius survey" for a nearby, long-dormant gas line. 🤯💥

So, why go through all the trouble?

The terms are simply unmatched for a long-term hold strategy. Here’s what we secured:

1️⃣A 40-Year Amortization: This was a huge win. As Rod noted, the longer amortization period significantly improves cash flow, making the interest rate feel much lower than it is.💪🏽
2️⃣A Great Fixed Rate: We locked in a rate of 6.09%. In the current market, that's an incredible long-term rate.💪🏽
3️⃣Stability: This financing is non-recourse and provides stability for the asset over decades.💪🏽

The Trade-Off
The major catch is the 10-year step-down prepayment penalty. This isn't a strategy for a quick flip; it’s a commitment. You won't be selling or refinancing for at least a decade, but for investors focused on building a long-term portfolio, the benefits are undeniable.

It’s a tough process, but the result is arguably the best financing available for multifamily properties.

Have you ever used HUD financing for a deal? I'd love to hear about your experience in the comments!

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