A market-rate property is a non-subsidized property, for which residents pay market rate rents or purchase properties at market value. When it comes to purchasing market-rate properties with a HUD 223(f) loan, borrowers are permitted Loan-to-Values (LTVs) of up to 85%, and Debt Service Coverage Ratios (DSCRs) as low as 1.18x. In comparison, affordable properties and properties using rental assistance are allowed more lenient underwriting standards.

Investing in market-rate properties can provide a number of benefits. The most obvious is the potential for higher returns than other types of investments. Market-rate properties typically have higher rental rates than affordable housing properties, which can lead to higher returns for investors. Additionally, market-rate properties are not subject to the same restrictions as affordable housing properties, such as rent control or income limits. This can provide investors with more flexibility in terms of how they manage their properties. Finally, market-rate properties can be easier to finance than affordable housing properties, as lenders may be more willing to provide loans for these types of properties.

Investing in a market-rate property involves a certain amount of risk. If the projected net operating income decreases substantially, the owner may be liable to make principal and interest payments or even, at some point, pay back the entire loan prematurely. Additionally, if the property’s value decreases, you could find yourself underwater on your loan – owing more than the property is worth. Before taking out a loan, be sure to speak with a qualified commercial real estate broker to discuss all of the risks and benefits associated with this type of financing.

Sources:

• www.multifamily.loans/apartment-finance-blog/cash-on-cash-returns
• www.multifamily.loans/apartment-finance-blog/the-benefits-and-risks-of-interest-only-loans-in-commercial-real-estate
• www.multihousingnews.com/how-the-latest-rate-hike-impacts-multifamily/

Market-rate properties are non-subsidized properties, for which residents pay market rate rents or purchase properties at market value. The different types of market-rate properties include single-tenant, multi-tenant, shadow-anchored, anchored, unanchored, local shopping centers, regional malls, big-box retail properties, power centers, neighborhood centers, and community centers. These properties can be Class A or Class D properties in tertiary markets.

When investing in a market-rate property, there are several factors to consider. These include:

• Location - the neighborhood that the property is located in will largely determine the types of tenants the property will attract as well as the vacancy rate.
• Current Listings and Vacancies - understanding the current listings and vacancies in the area can provide valuable insights into the rent climate.
• Rent - rental income is a key contributor to an investment’s profitability, so it is important to know the target area's average rental rates and to do a deep-dive analysis of the area to gauge where rent prices may be headed in the foreseeable future.