We spent about six weeks working a local credit union for the debt on a couple of our deals. Good people, knew the market. The kind of small bank everyone tells you to use.
It started normal. Entity docs, operating agreements, EIN letters. Then three years of K-1s. Then, could my wife sign as a guarantor. Then, could one of my investors sign too, a woman writing a check out of her trust, on a loan she’d have no control over.
That last one is where I stopped. I’m not putting a passive investor’s name on recourse debt she can’t steer.
Here’s the thing. None of those were deal terms. That’s a credit committee slowly talking itself out of a loan and making me do the paperwork while it decides. Six weeks to find that out.
I’ll be honest, it threw me. I’d put my faith in this lender. They’d given me every signal they were going to close, and I believed them. That’s the lesson, and it’s the kind you only learn the expensive way.
The debt is the deal
When you look at a real estate investment, the returns are the part that gets printed. Projected this, targeted that, a nice number on a one-pager. The debt is the part that decides whether you ever actually see it.
I mean that literally. You can buy the right building, in the right market, at the right price, and still lose money if the loan is wrong. The financing isn’t the boring administrative step after the real decision. It is the decision, as much as the price is.
Most operators talk about cap rates and rent comps because those are fun to talk about. The debt is where the deal quietly lives or dies.
Three doors, and what each one is for
There are basically three kinds of debt on a deal like ours, and they’re not interchangeable.
Bridge debt is short-term, usually floating rate, from a debt fund or a specialty lender. It’s fast and flexible, and it’s built for a property that isn’t stabilized yet. You use it to get in, fix the thing, and get out into permanent financing. The danger is the clock. It comes due in two or three years whether or not your plan is finished, and if rates moved against you, the refinance can eat the whole deal.
Local bank or credit union debt is relationship lending. A real person underwrites you, terms can be flexible, and they know the local market. The tradeoff is exactly what I just lived through. They can move slow, the credit committee can get nervous, and they’ll often want recourse, your personal signature, sometimes your spouse’s, sometimes more.
Agency debt is Fannie Mae and Freddie Mac money, placed through approved lenders. It’s the gold standard for stabilized apartments. Long term, often non-recourse, usually the best rate. The tradeoff is it’s strict. The property has to qualify, the process is rigid, and there’s less room to be creative.
None of these is the right answer by itself. The right answer is which one matches the deal in front of you.
2023 wasn’t a rent problem
Think back to the multifamily deals that blew up in 2023 and 2024. The headlines made it sound like the apartments stopped working. They mostly didn’t. Occupancy held. Rents held, more or less.
What broke was the debt. Operators had put short-term floating-rate bridge loans on long-term business plans. When rates climbed, the floating rate squeezed the cash flow. That part hurt, but that part alone doesn’t kill a deal. What killed deals was the term. The note came due in 2023 or 2024 and forced a refinance or a sale at the worst possible moment to do either. They couldn’t ride out the cycle. A sound building and a sound plan, and a clock that ran out before either one got the chance to prove itself.
That’s the whole lesson in one sentence. They didn’t have a rent problem. They had a term problem. They borrowed short to do something long.
And here’s the other side of it, the part I’m paying close attention to right now. Those same notes are still coming due. Owners who borrowed short are hitting their deadlines, and some of them have to sell into the clock instead of choosing their moment. That’s where the buying is. When a seller is up against a loan maturity, the price tends to reflect it. The operator who matched his term to his hold gets to be the one writing the offer. We’re seeing some of the best opportunities in a few years for exactly that reason.
The two questions I actually ask
So when I structure debt, or when I’d tell anyone to size up how a deal is financed, it comes down to two questions.
First, does the length of the loan match the length of the plan? If I’m going to hold this thing for years and operate it patiently, I don’t want money that comes due in the middle of the work. Match the term to the hold. The mismatch is what kills people.
Second, will this lender actually close? Not the cheap-rate question, the conviction question. You don’t get to keep five lenders on a string. Shop a deal to everyone at once and none of them take you seriously. You just look like a borrower nobody else would touch. So you pick one and you commit. Which means the whole game is reading that one right before you’re in deep. Does the deal fit their box? Does the credit committee actually want it, or is it just the relationship officer who’s optimistic? I trusted the optimism this time. Next time I pressure-test it before I’m six weeks in.
Cheapest rate is not the goal. A lender who closes, on a term that survives your plan, is the goal.
What I did with it
I stopped chasing a committee that had quietly decided no, and I’m taking the deal to agency debt. It costs me some time. A lot better than finding out at the closing table.
This is the same discipline I write about in the playbook: decide on the structure, not the sales pitch. Know what the money is actually doing before you take it. It’s free at neelypi.com/playbook.
The return is what gets you interested in a deal. The debt is what determines whether you keep it.
— Brent