Hey Friends,
There’s a strategy quietly gaining traction among California multifamily buyers right now, and it’s one that most investors either don’t know about or assume isn’t available to them.
Assumable debt.
In a market where financing costs are one of the biggest obstacles to making a deal pencil, some buyers are sidestepping today’s rates entirely by taking over existing low rate loans on properties they’re acquiring. In CA, where agency financed multifamily is common, the opportunity is more accessible than most people realize.
What Assumable Debt Actually Means
When a property was financed through Fannie Mae or Freddie Mac, the loan is often assumable. That means a qualified buyer can take over the existing loan, including its original interest rate, remaining term, and balance, rather than originating new financing at today’s rates.
If the seller has a loan at 3.5% with seven years remaining and today’s market rate is 6.5%, the buyer stepping into that debt is starting from a fundamentally different position than someone financing from scratch.
The math on cash flow, DSCR, and overall deal returns can look completely different.
Why It’s Becoming More Relevant Now
According to the Mortgage Bankers Association, over $400 billion in multifamily loans are scheduled to mature between 2025 and 2027. Loans originated in 2018, 2019, and 2020 still have meaningful term remaining. As those properties come to market, whether through motivated sellers, maturity pressure, or estate situations, the assumable debt attached to them is part of the asset.
Most buyers aren’t asking about it. The ones who are asking are finding opportunities that others are walking past.
What to Know Before You Pursue It
Assumption isn’t automatic. It requires lender approval, a creditworthy buyer, and sometimes an assumption fee. The process takes longer than a standard closing and requires working with the existing servicer.
There’s also often a gap between the assumable loan balance and the purchase price that needs to be covered, either with cash or a supplemental second loan. Understanding how to structure that gap is where the deal either works or doesn’t.
The key things to evaluate:
- Remaining loan balance vs. purchase price gap
- Existing rate and remaining term
- Assumption fee and lender approval timeline
- Whether a supplemental loan is available and at what rate
- How the blended cost of debt compares to new financing
The Takeaway
In a high rate environment, the financing you assume can be just as valuable as the property itself. CA multifamily buyers who know how to identify and structure assumable debt deals are accessing returns that simply aren’t available through conventional financing right now.
If you’re evaluating an acquisition and want to understand whether assumable debt is on the table and how to structure it, reply to this email and I’m happy to walk through it with you.