Happy Friday. This is The Shake 🤝: the weekly newsletter delivering hit after hit like the top 5 artists in the music industry…

Here’s what we got this week:

• Fannie Mae Got 5 On It 🖐️ 

MARKET RADAR

Fannie Mae Got 5 On It 🖐️ 

Fannie Mae has decided to drop it like it's hot in the real estate game with a new policy change that's got everyone singing, "I got 5 on it!" 

In case you want to listen to the iconic song while reading the rest…. here you go. And if you don’t know this song… you’re welcome.

Starting the weekend after November 18, 2023, Fannie is rolling out the red carpet for aspiring property moguls, now allowing a mere 5% down payment for those eyeing owner-occupied 2-, 3-, and 4-unit homes.

Previously, conventional loan options for these small multifamily properties were 15-25%! Although the FHA program has allowed 3.5% down for these property types, their dreaded self-sufficiency test on 3-4 units creates a hurdle too high for most to jump over (especially in a high-rate environment like today). 

Fannie didn’t cheap out either - the maximum loan amount allowed for these 2-4 unit properties is set at $1,396,800.

This purchasing power got our minds running… could we see a world where developers start building more 2-4 unit property subdivisions instead of SFH’s? 

It’s predicted we will become a nation of renters, so instead of BTR (build-to-rent), why not give homeowners the luxury of being owner-landlords?

With rental income support, maybe there will be a premium paid for this niche…

Regardless, this low down payment opportunity is like music to the ears of prospective owner-landlords, providing them with the chance to waltz into the world of multifamily living without breaking the bank.

How will this affect the small multi-game? Most likely increased competition with the influx of owner-occupied retail buyers.

By leveraging rental income, this policy shift represents a huge opportunity for disciplined buyers who decide to purchase an investment before a traditional single-family home.

With rates reducing the purchasing power of buyers, we believe this shift in mentality will become common for those desperate to find an opportunity to own real estate. 

This is also great news for current owners of small multi; your buyer pool just expanded and this increase in demand should (in theory) lead to higher bids on your property. 

Many owner-occupants could care less about immediate cash flow, making it tough for traditional investors to offer the same price as a power couple looking to house hack. All this will lead to higher valuations for well-positioned small multifamily. 

It will be interesting to track the amount of 2-4 unit transactions in 2024 to see how this policy change plays out - we’ll report back 🤝 . On top of this, will more developers begin to test a new concept tailoring to this policy shift? Keep your eyes peeled…

All in all, gone are the days of hefty down payments reminiscent of a rap video budget – Fannie's shaking things up by lowering the bar for entry into the multifamily property party. *Mic drop 🎤 

FIN 🤝 If you enjoyed this week's edition, don’t be selfish — share with a friend!

^{DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.}