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Commercial Real Estate FAQ With Brian Burke On MultiFamily Apartment Building Investments

What Is HUD Financing?

The following Q&A was completed as part of our conversational Commercial Real Estate FAQ Interview Series, we hope you find it helpful.

While HUD financing has some advantages for certain buyers, the process of acquiring HUD financing can be exceptionally long, throwing a possible wrench in your investments. HUD financing has low interest rates and long amortization, making it a great potential choice for legacy investors who plan to hold onto a property for generations. For those looking to be more competitive in the market, other financing options may be better suited to your needs. 

Richard Wilson: I would imagine so. I mean, related to optimization, what is HUD financing? And when is that best considered? 

Brian Burke: HUD financing is a product put out by the Department of Housing and Urban Development in cooperation with the FHA, Federal Housing Administration. This loan is really desirable by some because it has low interest rate, and it has really long amortization. So, let’s say you’re a legacy holder, you know you’re going to own this asset for decades if not generations, a HUD loan might make sense because you can amortize it over 40 years, which will improve your cash flow in the early period of your investment, and you can also have a lower interest rate than even what the agencies might provide. 

There’s downsides, though, to HUD financing. One of the major downsides is that it takes a really long time to secure the financing, and so if you’re in a situation where it’s a competitive environment, trying to acquire a property, and you want to be able to close in 45 to 60 days, with the HUD financing – forget it. It’s just not going to happen. It takes a long time to close those. But if it’s a refinance and you’ve got all the time in the world, that’s one option for you. The other downside is they have limitations on how often you can make a distribution, it’s one to two times a year rather than with any other financing you can distribute whenever you want. You can distribute monthly, quarterly, as-needed, but with HUD loans, there’s limitations on those distributions. 

Richard: Right, right. I think you’re lucky if you get a HUD loan done in 4 to 6 months. It’s many times 5 to 9 months, usually, is that right ballpark wise? 

Brian: Yeah, I mean it’s a very long time. Best case scenario, maybe you get one done in 90 days, but you’ve really got to be on top of it to make that happen. It is a very slow process. Now I’ve heard that they want to try to make it better, and do that faster, but still for a refinance scenario maybe it’s one thing. Or if you have a really patient seller, maybe it works, but today’s landscape in the multi-family acquisitions arena, it’s very competitive, and one of the elements that people look at is how long is it going to take you to close, and if you tell them “Eh, 3 to 6 months.”, there’s no way they’re picking you as the buyer for that property. 

About the author

Richard Wilson