Avoiding the Trap: What Every Investor Should Know About Loan Clauses
By Mark Kenney | Think Multifamily
In multifamily investing, the right debt structure can protect your deal.
The wrong one can bring it down faster than almost anything else.
At Think Multifamily, we’ve seen how easily loan terms can derail even well-underwritten projects.
It’s not just about “getting the loan.” It’s about getting the right loan — with terms you can live with in good times and bad.
Real Story
Over the past few years, we’ve seen syndicators take on floating-rate loans and in some cases with no rate caps, assuming interest rates would stay low.
When rates shot up, so did their monthly payments — squeezing cash flow, forcing capital calls, and even leading to distressed sales or foreclosure.
In many cases, the property performance didn’t fail — The loan terms did.
Key Lesson
You must fully understand — and plan around — your debt structure.
Critical elements to watch:
Loan term length versus your business plan.
Fixed vs. floating interest rates.
Prepayment penalties and lender flexibility.
If you can't refinance, extend, or sell at the right time, the wrong loan can trap you — and your investors.
Practical Guidance
✅ Favor fixed rates when possible.
✅ Understand your pre-payment penalty — it can vary drastically.
✅ Avoid loans with inflexible timelines that force action in uncertain markets.
✅ Understand every clause before signing — no assumptions, no shortcuts.
Bottom Line
Debt isn’t just a tool. It’s a risk multiplier.
Handled correctly, it can fuel your success.
Handled poorly, it can destroy it — no matter how strong your property fundamentals are.
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