Market Studies for HUD 223(f) Loans: Everything you need to know about market studies for HUD 223(f) financing.
HUD 223(f) Market Studies
If you're an investor looking to use HUD 223(f) financing in order to purchase or refinance a multifamily property, a Market Study is one of the most important third-party reports that you'll need to have complete before submitting your application to HUD. Market Studies take a close look at many components of a multifamily development in order to estimate its current and future profitability.
In most cases, a Market Study must be no more than 120 days old when submitting to HUD at loan application. Market Studies have two major components:
HUD Valuation Analysis: This looks specifically at the target property in order to determine current and potential profitability.
HUD Market Condition Analysis: This examines the general condition of the multifamily real estate market in the target property's area.
HUD VALUATION ANALYSIS
A HUD Valuation Analysis carefully examines a property in order to:
Estimate the project's market value
Assess the property's viability as mortgage collateral
Analyze market needs
Project potential expenses/estimated income
Record current rents (both residential and commercial)
Determine whether rents are sufficient to cover:
Mortgage payments, including MIP
Monthly escrows/replacement reserves
Other expenses (including management, maintenance, and utilities)
HUD MARKET CONDITION ANALYSIS
The other major segment of the Market Study, a Market Condition Analysis, looks more at the general health of the multifamily real estate market in the project's area. This helps HUD determine the property's short and long-term economic viability. The Market Condition Analysis looks at factors including:
Specific market conditions that could affect the project's profitability
Geographic boundaries/characteristics of the market area
Estimated absorption time for the project's units
Supply and demand for multifamily real estate units in the area