1: 3 Ways to Invest in Multifamily 2: How Apartments Get Financed 3: How to Choose the Best Loan 4: How to Create your Sponsorship Group 5: How to Get your Equity Out BONUS: Multifamily Underwriting 101- How to underwrite a multifamily property. How to underwrite each line item of a P&L to get your NOI.

1. 3 Ways to invest in Multifamily
By: James Eng
Senior Director Old Capital Lending
Frisco, TX
jeng@oldcapitallending.com
214-300-5035

2. Summary of Investment Options
Independent Rental
Owner (IRO)
Lead Investor (General
Partner)
Limited Partner
Sign as guarantor on loan Yes Yes No
Management Control Yes Yes No
Control investment decision
timing (sale/refinance)
Yes Yes No
Find, negotiate, close
transaction
Yes Yes No
Receive acquisition fee or
sponsorship equity
No Yes No
Receive tax advantages of
real estate ownership
Yes Yes Yes
1031 Exchange Yes Typically No Typically No

3. Independent Rental Owner (IRO)
Disadvantages
• Depending on amount of capital, might not be able to
acquire enough units to leverage full economies of scale
• Must sign as guarantor on loan
• Must find, negotiate, close, and manage the property
• Concentrated risk in a small number of properties
• Must spend time learning to be asset manager/property
manager
Advantages
• Ability to control investment and make decisions
based on your personal situation
• No general partners or limited partners to answer
to
• Ability to roll capital gains from one investment
to the next utilizing a 1031 exchange
Independent rental owners are individuals with strong balance sheets looking to
own their own properties without partners.
Example:
• Doctor purchases 25 unit property for $1MM. He invests $250K as a down payment and takes out a recourse
bank loan for $750K. He must personally sign recourse for the loan. Due to the small number of units, he
either self manages the property or pays a high management fee of 7%-10% of income.

4. Lead Investor
Disadvantages
• Must sign on loan as guarantor
• Must spend the time to find the deal,
negotiate the deal, raise the equity, and be
asset manager of the property
Advantages
• Earn acquisition fees, sponsorship equity,
and/or larger return compared to cash
invested in deal
• Control over property investment decisions
• Ability to leverage other people’s money to
buy larger apartment properties
• No limit to the size of properties you can buy
• Leverage 3rd party property management
Lead Investors put deals together by leveraging other people’s money and 3rd party
property management to buy larger multifamily properties.
Example:
• Lead investor acquires a 100 unit multifamily property for $5MM. Lead investor signs a non-
recourse note for $4MM and raises the down payment of $1MM from limited partners. Lead
investor might earn a 1% acquisition fee and/or 10% sponsorship equity for putting the deal
together.

5. Limited Partner
Disadvantages
• Must spend time identifying and meeting lead investors
• No management control of property. Must rely on
general partner to make day to day decisions
• Limited liquidity as general partner will make decisions
about when to sell or refinance the property
• Lower return due to payment on sponsorship fee and/or
sponsorship equity for general partner putting deal
together
• Difficult to utilize 1031 tax deferred exchange as all
members of the LLC must go to next transaction
Advantages
• Do not have to sign as guarantor on loan
• Do not have to find, negotiate, close transactions
• No day to day responsibilities of managing the property
• Receive monthly or quarterly distributions of cash flow
with limited investment of time after initial due diligence
at acquisition
• Receive same tax benefits in terms of depreciation as
independent rental owner and lead investors
• Ability to receive benefits of economies of scale of larger
properties
• Ability to invest across thousands of units with multiple
general partners in multiple submarkets for
diversification of risk
Example:
• Retired corporate executive has $1MM to invest in real estate. He invests $50K across 20 separate deals with 5 general
partners in 4 different markets: Dallas, Houston, Austin and San Antonio.
• Experienced borrower (at least 12 months of multifamily ownership experience)Limited partners can achieve truly passive income at a slightly lower return with
diversification across multiple properties, general partners and markets.

6. Multifamily Finance 101
By: James Eng
Senior Director Old Capital Lending
Plano, TX
jeng@oldcapitallending.com
214-300-5035

7. 3 Questions
1. Is the property stabilized (yield play) or distressed (value play)?
2. What is your experience with multifamily (5 units and above) real
estate?
3. What is your net worth and liquidity?

8. 1: Is the property stabilized?
Stabilized Properties (Yield):
• 90% occupancy for 90 Days
• No major rehab needed
• Clean historical financials
Non-Stabilized (Value Play):
• Distressed assets performing
below market
• Physical updates or operations
need to be updated
• Low occupancy and low NOI

9. 2: What is your multifamily experience?
Experienced Operator:
• At least 24 months of
multifamily ownership
New Investor:
• No Experience, but a lot of
enthusiasm

10. 3: What is your net worth and liquidity?
Net Worth
• Must be equal to or greater than
the loan amount
Liquidity
• Minimum of 10% of loan amount in
cash or marketable securities not in
retirement accounts

11. Loan Scenarios
Assuming you meet the net worth and liquidity requirements:
Stabilized Property + Experienced Operator= Non-recourse loan (Agency or CMBS)
Stabilized Property + New Investor= Recourse loan (bank)
Non-stabilized Property + Experienced Operator= Recourse loan (bank)
Non-stabilized Property + New Investor= Recourse loan (bank)
Typical Non-Recourse Loans terms:
• 75-80% Loan to Cost
• 5 or 10 year term
• 30 year amortization
• No personal guarantee of loan shortfalls
Typical Recourse Loans terms:
• 70-75% Loan to Cost
• 5 year term
• 20 or 25 year amortization
• Personally guarantee any loan shortfalls

12. Commercial Real Estate Loan Options:
How to choose the best loan
By: James Eng
Senior Director Old Capital Lending
Frisco, TX
jeng@oldcapitallending.com
214-300-5035

13. Summary of Loan Types
Type of Loan Bank Loan Fannie Mae Freddie Mac CMBS
Non-recourse No Yes Yes Yes
Typical Loan Term 3-5 Years 5 or 10 Years 5 or 10 Years 5 or 10 Years
Amortization 20-25 Years 30 Year 30 Year 30 Year
Max LTV
(Acquisition/Refinance)
75%/75% 80%/75% 80%/75% 75%/75%
Interest Rates based on Cost of funds of deposits 10 year treasury 10 year treasury 10 year treasury
Property Occupancy Flexible Minimum 90% for past 90
days
Minimum 90% for past 90
days
Stabilized (80% or up)
Rehab Budget Included in loan Included in loan Not included in loan Not included in loan
Escrows (RE Taxes, Insurance,
Replacement reserve)
Yes Yes Yes on Real Estate taxes Yes
Prepayment Limited to none Yield Maintenance Step Down Yield Maintenance or
Defeasance
Supplemental Loans or
Earnout
Yes Yes Yes None
Borrower Experience New investor Experienced Experienced Experienced
Property Types All Multifamily Multifamily All

14. Types of Loans Overview
Stabilized Property + Experienced Operator= Non-recourse loan (Fannie Mae,
Freddie Mac, or CMBS)
Stabilized Property + New Investor= Recourse loan (bank)
Non-stabilized Property + Experienced Operator= Recourse loan (bank)
Non-stabilized Property + New Investor= Recourse loan (bank)
Typical Non-Recourse Loans terms:
• 75-80% Loan to Cost
• 5 or 10 year term
• 30 year amortization
• No personal guarantee of loan shortfalls
Typical Recourse Loans terms:
• 70-75% Loan to Cost
• 5 year term
• 20 or 25 year amortization
• Personally guarantee any loan shortfalls

15. Recourse Bank Loan
Disadvantages
• Signing personal guarantee for any loan shortfalls
• 20 or 25 year amortization
• Shorter fixed rate loan term (3 or 5 years) typically
Advantages
• Lower interest rate (based on cost of funds of deposits) and will typically not change
during loan underwriting process
• Limited prepayment penalty (step down or none)
• Receive loan commitment before spending money on 3rd party reports and application fee
• Quicker underwriting and closing process as decision maker closer to asset
• Rehab can be rolled into the loan
• Available to first time investor
• All property types
Typical Transaction:
• Occupancy below 90% for last 3 months
• Rehab greater than $5,000/unit
• Investor wanting to sell property in less than 5
years
• First time investor
Example of Closed Transaction
Wilshire Manor Apartments (58 units) was acquired with a
bank loan by a local first time investor group. The property
was a 90% occupied Class C property in Arlington, TX. Old
Capital arranged a 5 year, 25 year amortization loan with 12
months interest only on a fixed interest rate of 4.75% with no
prepayment penalty.
Recourse bank loans work well for first time investors looking for low interest rates, flexible
prepayment, and are comfortable signing a personal guarantee for loan shortfalls.

16. Non-Recourse Fannie Mae Loan
Disadvantages
• Limited flexibility on loan structure (No changes to loan documents)
• Large prepayment penalty (Yield Maintenance or Defeasance) early
in loan term
• Interest rate not fixed until week before closing
• Must submit application fee and 3rd party fees upfront
• Only for Multifamily properties
Advantages
• Do not sign personal guarantee for any loan shortfalls
• Max 80% LTC for Acquisition and Max 75% LTV for Refinance
• 5, 7, 10, 12, 15, 30 year loan term and 30 year amortization
• Rehab up to $5,000/unit rolled into the loan
• Can be approved by Delegated underwriter without having to go to Fannie Mae
• Fixed interest rate
• Interest only available
• Low legal and closing costs
• Supplemental loan available
• Minimum loan amount of $750,000
Typical Transaction:
• Stabilized property (90% occupancy or higher for last 90
days)
• Limited rehab or deferred maintenance
• Investor wanting to hold property long-term (5 or 10
years)
• Experienced borrower (at least 12 months of multifamily
ownership experience)
Example of Closed Transaction
Woods of Haltom (88 units) was acquired with a $2.750MM
Fannie Mae loan by a experienced investor. The property was
a 95% occupied Class C property in DFW. Old Capital arranged
a non-recourse fixed rate loan with 30 year amortization.
Fannie Mae loans work well for experienced investors acquiring stabilized multifamily
properties with limited rehab needed wanting to hold the property long-term.

17. Non-Recourse Freddie Mac Loan
Disadvantages
• Limited flexibility on loan structure (No changes to loan documents)
• No rehab rolled into the loan
• Interest rate not fixed until week before closing
• Must submit application fee and 3rd party fees upfront
• Must be approved by Freddie Mac (1-2 weeks longer approval
process than Fannie delegated underwriters)
• Only for Multifamily properties
Advantages
• Do not sign personal guarantee for any loan shortfalls
• Max 80% LTC for Acquisition and Max 75% LTV for Refinance
• 5, 7, 10, 12, 15, 30 year loan term and 30 year amortization
• Step down prepayment penalty available
• Fixed interest rate
• Interest only available
• Low legal and closing costs
• Supplemental loan available (not available on small balance loans under $5MM)
• Minimum loan amount of $1,000,000
Typical Transaction:
• Stabilized property (90% occupancy or higher for last 90
days)
• No rehab or deferred maintenance
• Investor wanting to hold property long-term (5 or 10
years)
• Experienced borrower (at least 12 months of multifamily
ownership experience)
Example of Closed Transaction
Magnum Oaks (38 units) was refinanced with a $1.350MM
Freddie Mac loan by a experienced investor. The property was
a 100% occupied Class C property in Houston, TX. Old Capital
arranged a non-recourse fixed rate loan with 30 year
amortization, 3 years interest only with a 4.75% interest rate.
Freddie Mac loans work well for experienced investors refinancing stabilized multifamily
properties with no rehab needed wanting to hold the property long-term.

18. Non-Recourse CMBS Loan
Disadvantages
• No rehab rolled into the loan
• Limited flexibility on loan structure
• Prepayment penalty (Yield Maintenance or Defeasance) very expensive early in loan term
• Interest rate not fixed until week before closing
• Must submit application fee and 3rd party fees upfront
• Legal costs higher than other loan programs due to being securitized to investors
• Minimum loan size of $3,000,000 typically due to higher transaction costs
Advantages
• Do not sign personal guarantee for any loan shortfalls
• 5 or 10 year loan term and 30 year amortization
• Fixed interest rate
• Interest only available
• Large cash out available on refinances
• Available for secondary/tertiary markets
• All major property types (Apartment, Office, Retail, Industrial, Self-storage, etc..)
Typical Transaction:
• Stabilized property (80% occupancy or higher)
• Limited rehab or deferred maintenance
• Investor wanting to hold property long-term (5 or
10 years)
• Over $3MM loan amount
Example of Closed Transaction
Experienced investor group utilized a CMBS loan for the
refinance of a bank loan. The property was a 92% occupied
Class C property in Dallas, TX. Old Capital arranged a non-
recourse 10 year fixed rate loan allowing the borrower to cash
out over $1MM at close.
CMBS loans work well for investors looking to lock in long term fixed interest rates
with 30 year amortization on a non-recourse loan.

19. How to create your sponsorship group
for Agency Loans (Fannie/Freddie)
By: James Eng
Senior Director Old Capital Lending
Frisco, TX
jeng@oldcapitallending.com
214-300-5035

20. Pieces of the Puzzle
Multifamily
Ownership
Experience
Net Worth
and
Liquidity
Finding
the
Property
Raising
the Equity

21. Net Worth and Liquidity
Requirements:
• Net Worth of the sponsorship group must be equal to or greater
than the loan amount. Net worth includes the value of your
personal residence.
• Post close liquidity of the sponsorship group must be greater than
10% of the loan amount. These funds must be in cash or
marketable securities outside of retirement accounts. Bank
statements will be required to show proof of these funds.
Example:
• Sponsorship group is purchasing 100 unit multifamily in Dallas, TX
for $5MM. The loan amount requested is $4MM. The sponsorship
group in total must have a minimum net worth of $4MM and post
close liquidity of $400,000.

22. Multifamily Ownership Experience
Requirements:
2 ways of qualifying for this experience:
1) Have at least 12 months of previous multifamily ownership experience
2) Sign as a key principal on a Fannie Mae or Freddie Mac Loan
Example:
• A key principal (KP) purchased a 75 unit in Jan 2015 with a recourse bank loan
and is now looking to purchase 100 units in April 2016. This key principal
would qualify for Fannie Mae since they have owned a multifamily of similar
size for over a year.
• A key principal purchases a 75 unit and signs on a Fannie Mae loan in
December 2015 and is now looking to purchase 100 units in April 2016. The
key principal would qualify for Fannie Mae since they have already signed on a
Fannie Mae loan even though they have owned for less than 1 year.

23. Finding the Property
Requirements:
• Stabilized occupancy (90% occupied for the last 90 days)
• Limited deferred maintenance
• Under $5,000/unit in rehab
Example:
• Sponsorship group is purchasing 100 unit multifamily in Dallas, TX
for $5MM. The occupancy is 93% and has been above 90% for the
last 6 months. The property needs $450,000 in rehab, which falls
below the $5,000/unit threshold. There is limited deferred
maintenance of $50,000 for access gates and parking lots.

24. Raising the Equity
Requirements:
• Sponsorship Group needs to have a minimum of 10% of the equity
in the transaction
• Limited partners typically do not have more than 20% equity in the
transaction or they will sign as a principal on the loan
Example:
• Sponsorship group is purchasing 100 unit multifamily in Dallas, TX
for $5MM. The loan is expected to be 80% LTV, so the group needs
to raise $1MM. The sponsorship group will need to own at least
10% of the borrowing entity and no one limited investor can own
more than 20%.

25. Other Agency Loan Considerations
• 3rd Party Property Management: If the sponsorship group has full-
time jobs outside of real estate or does not live close to the
property, it typically makes sense to hire a 3rd party property
manager experienced in the local market. Lenders are more
comfortable with a 3rd party property manager on your first couple
of property acquisitions.
• US Citizenship: Fannie and Freddie Loans are for Key principals that
are US Citizens. There are exceptions to this rule, but they require a
waiver from the agency and cannot be approved at the delegated
underwriter level.
• Tenant Concentrations: Any tenant concentrations must be
disclosed up front. Items such as student, military, or employer
concentrations.

26. How Apartments get Financed:
How to get your equity out
By: James Eng
Senior Director Old Capital Lending
Plano, TX
jeng@oldcapitallending.com
214-300-5035

27. How to get your Equity out:
1. Refinancing out of recourse debt into non-recourse
2. Agency Supplemental Financing
3. Earnouts

28. 1: Recourse to Non-Recourse
Non-Recourse Loans terms:
• 75% Loan to Cost (Refinance); 80% Loan to Cost (Acquisition)
• 5 or 10 year term
• 30 year amortization
• No personal guarantee of loan shortfalls
Recourse Loan Terms:
• 70-75% Loan to Cost
• 5 year term
• 20 or 25 year amortization
• Personally guarantee any loan shortfalls
New Investor: 1st Apartment purchased in 2013
• NOI of $100K
• Purchase Price $1M (Purchased at 10% cap rate)
• Financed with recourse bank debt of $750K
• Equity down payment of $250K
2015 ( Raised rents, improved occupancy, reduced expenses)
• NOI of $140K
• Updated value of $1.4M
• Financed with non-recourse agency debt of $1.050M
• Payoff recourse bank debt of $750K
• Equity recaptured of $300K
By increasing the value of the property, you have pulled out all of your initial equity,
moved to non-recourse debt, and still own the property.

29. 2: Agency Supplemental Loans
Typical Supplemental Loans terms:
• 75% Loan to Value
• Co terminus maturity with first mortgage
• At least 12 months after first mortgage origination and with
at least 7 years remaining on loan term
• Lender looking for NOI growth not just cap rate compression
Experienced Investor: Apartment purchased in 2013
• NOI of $500K
• Purchase Price $5M (Purchased at 10% cap rate)
• Financed with non-recourse agency debt of $4M
• Equity down payment of $1M
2015 ( Raised rents due to interior rehabs and reduced expenses)
• NOI of $700K
• Updated value of $7.0M
• 75% LTV qualifies loan of $5.250M, which allows investor to
receive $1.250M supplemental loan in addition to $4M in
existing debt.
• 125% of Equity recaptured
By increasing the value of the property, you have pulled out all of your initial equity
and still have low interest rate fixed debt on cash flowing asset.

30. 3: Earnouts
Typical Earnout Loans terms:
• 75% Loan to Value
• Co terminus maturity with first mortgage
• Lender looking for NOI growth
• Based on Debt Yield (NOI/Loan Amount), typically at least 10%.
Experienced Investor: Apartment purchased in 2013
needed significant rehab over 2 years
• NOI of $500K
• Purchase Price $5M (Purchased at 10% cap rate)
• Financed with bank debt of $3.750M
• Equity down payment of $1.250M
2015 ( Raised rents due to interior rehabs and reduced expenses)
• NOI of $700K
• Updated value of $7.0M
• 75% LTV of new value reaches a total loan of $5.250M, which
allows investor to receive $1.250M in a earnout in addition to
$4M in existing debt.
• 100% of Equity recaptured
By increasing the value of the property, you have pulled out all of your initial equity
and still own a cash flowing asset.

31. How to get your Equity out:
1. Refinancing out of recourse debt into non-recourse
2. Agency Supplemental Financing
3. Earnouts

32. Multifamily Underwriting
REVENUES
Rental Income:
Gross Potential Rent
If all units were leased at market rent. Based on current Rent Roll (# of Units X Rent X
12). 2 ways of calculating: Either In place rents + vacant at market (conservative) or all
units at market rent (more aggressive).
Vacancy
Physically vacant units. Based on current rent roll vacancy and competing properties.
Minimum of 5% of gross potential rent.
Rental Concessions, delinquencies, etc
What specials are the subject property giving? What about other properties? Is the
property collecting rent from all tenants, how much usually is written off in bad debt?
Any non-revenue units for manager or model? Trailing 12 and competing properties in
submarket.
NET RENTAL REVENUE (Gross Potential - vacancy-rental concessions-
delinquencies)
Actual Rental income collected. Conservative is trailing 12 net rental income. Lenders
will use Trailing 3 months annualized. Some brokers will proforma trailing 1
annualized.
Other Income
Good News income (Laundry, parking, utility reimbursement): 100% of trailing 12
Bad News income (late fees, security deposit forfeit) 80% of trailing 12
EFFECTIVE GROSS INCOME: Net Rental + Other Income
EXPENSES
Real Estate Taxes:
(Greater of 80% of purchase price or current assessed value) X current tax rate.
Compare to other properties in area to determine tax comparables.
Insurance: Trailing 12 or insurance estimate quote; Average of $300-$350/unit
Utilities:
Trailing 12; Electric, gas, water (Approximately $1000/unit). Determine what utilities
tenants currently pay for directly or through a reimbursement system (RUBS).
Repairs and Maintenance:
Trailing 12; Building maintenance and repairs, unit turns; Not CAPEX; ($1,000/unit).
Remove any items that are full replacement as these are capital items.
Property Management Fee:
Typical property management fees: 5% for 50-75 units ; 4% on units under 75-150
units, 3% on units above 150 units
Payroll:
Trailing 12; includes leasing agent and maintenance person along with benefits;
contract services for items on-site staff cannot complete ($1200/unit; $100K-125K)
General and Admin:
Trailing 12; includes marketing, leasing office expenses, licenses. (Approximately $200-
$300/unit)
Capital reserve or replacement reserve
Replacement reserve either held by lender or owner to replace large capital items over
time. $300/unit for Class C, $275/unit for Class B, $250/unit for class A.
Total Expenses: Total expenses typically range from $4,500/unit-$6,000/unit.
Expense ratio 55%-65% of total revenue on Class C deals
NET OPERATING INCOME Total Revenue- Total Expenses