How Understanding the Lending Requirements from Fannie Mae & Freddie Mac Can Make You a Wiser Passive Investor

As a limited partner, your role in the life cycle of the deal is passive, but not on the front end.  You have a lot of due diligence to perform with what could be a significant investment in your portfolio – track record of the operator, the MSA, the property, the business plan, and the exit strategy, to name a few.  How about the debt structure? Considering that the lender is bringing up to 80% of the capital to the deal, their terms are going to have a tremendous impact on the outcome and your subsequent returns.

The two largest government-sponsored enterprises (GSE’s or “agencies”) providing capital for multifamily deals, Fannie Mae (FNMA – Federal National Mortgage Association) and Freddie Mac (FHLMC – Federal Home Loan Mortgage Corporation), now have the most attractive terms in apartment lending history.  Credit unions, banks, bridge lenders, commercial mortgage-backed securities, HUD, and even life insurance companies all offer multifamily products.  Agency debt may have the best and most flexible terms, but they also have stricter qualifications.  As a limited partner, understanding what agencies are looking for in a borrower, how they underwrite the property, and the details of the terms makes you a more informed investor.

The purpose of this article is to focus on the general guidelines that are similar between agencies.  It is not to distinguish between Freddie and Fannie, or any number of the programs within each agency.

Let’s break it down so we can be better investors, thereby finding the right passive investments for our risk tolerance and to boost our returns.

 The Property

When it comes to the deal, the property is the most important factor determining Fannie and Freddie’s appetite.  They want to be in the “top markets”.  Top markets are identified by populations exceeding 60,000 people, with a significant portion of that MSA being renters.  The loan size must be at least $1 million.  They will lend up to 80% loan-to-value (LTV), and the property must meet a debt-service coverage ratio of at least 1.2.

They are also looking for properties that are stabilized with a minimum physical occupancy of 85% (90% on a refinance).  Having 90% occupancy for 90 days is what’s considered an appropriate occupancy history to meet this criteria.

If your sponsor plans to reposition the property by upgrading units and raising rents, they would have to bring capital for the rehab or access a supplemental loan, depending on the program.  Freddie Mac’s Small Balance Program, for example, will not finance improvements.   With that, some operators are using some form of a bridge loan on the front end of the deal, implementing their value-add strategy, and then refinancing into the agency loan when the property meets requirements.  This is why you, as the limited partner, should understand how these details affect the return of your principal, the risk, and the return on your investment.

The Borrower

Fannie and Freddie love repeat borrowers.  A track record always gives a sponsor a leg up on the deal.  This is good news for you as an investor because you want to see an operator with a history of success as well!  However, since the property is the most important aspect of the underwriting process, it is possible to obtain an agency loan without experience.  Many times that will come in the form of the general partner teaming up with other operators who have closed deals.  As a limited partner, this is clearly an important detail in evaluating a potential deal and what parties are involved.

Agency underwriters are not interested in the sponsor’s tax returns or their depository relationship with the bank.  They just want to feel comfortable that the sponsor team can handle the property and execute their vision.

To ensure that, they require professional property management and prefer a sponsor who resides within an hour drive of the property.  Only the most experienced operators access agency debt for out-of-state deals by having a very clear vision of their operations plan.

The Terms

The details of the loan terms are where qualifying borrowers get very excited.  All loans are non-recourse.  That means the amount brought to closing for the down payment is the maximum amount that can be lost by the general and limited partners.  If the bank has to take the property back, they want to know the cash flow can support the operation, thereby limiting potential losses in that scenario. 

All loans are assumable, meaning that if the sponsor team sells the property, the buyer can take over the existing loan for only a 1% fee.

Currently, these loans can be financed at rates in the high 2% to low 3% range. That’s not a misprint!  Fannie and Freddie are doing their part to fund multifamily deals by incentivizing borrowers and keeping transactions flowing.

The maximum loan-to-value is 80 percent and the loan can be amortized up to 30 years.  The interest rate can be fixed or floating for five, seven, or ten years and interest-only options are available in the first few years depending on the LTV ratio.  If a general partner can bring 35% of the deal to closing, a 65% LTV would allow the borrower ten years of interest-only payments with a fixed rate.  This would not necessarily make sense in every deal; however it’s meant to illustrate the flexibility to meet the goals of the investment. 

The longer a rate is fixed, the higher the penalty for exiting the deal early.  Beware of yield maintenance, which is a prepayment penalty designed to protect lenders from declining interest rates.  If interest rates decline, a fixed rate loan is not as attractive, thus enticing the sponsor to refinance at a lower rate.  This puts the lender in a tough spot because they will lose a higher-yielding loan that will be replaced with a lower one.  Yield maintenance protects the lender, but will cost the borrower.  There’s always a trade-off in finance!  Be cognizant of the exit strategy and whether the financing used marries up to the overall life cycle projection of the deal.  If you’re looking at a value-add reposition with a 3-5 year exit plan, but have a 10 year fixed rate loan, it’s worth asking the sponsor what their rationale is.

Tax escrows are required, and there have been a few changes in 2020 to protect lender downside in the COVID-19 era.  Insurance is also escrowed in addition to replacement reserves for properties with over 50 units.  This is prudent in today’s environment.


We are all investors with completely different financial objectives and tolerance for risk. Understanding how agency debt is structured and the terms operators are accessing is imperative to successfully managing that risk.  Additionally, studying how interest rates move and affect debt markets on a macro-level is paramount for verifying pro forma reversion cap rates and how they affect the internal rate of return of the deal.

Debt structure is one aspect of the deal. But it’s a big one.  Be sure you do your own due diligence on the leverage the sponsor intends to use.  After all, it could make or break the deal!

Paul Shannon is a full-time active real estate investor, as well as a limited partner in a number of syndications.  Prior to leaving the corporate world, Paul worked for a medical device company, selling capital equipment to surgeons in the operating room.  After completing a few rehabs employing the “BRRRR method”, he saw scalability and more control over how he spent his time, and left to pursue real estate in 2019.  Since then, Paul has completed over a dozen rehabs on both single-family and multifamily properties.  He currently owns over 50 units in Indianapolis and Evansville, IN and is a limited partner in larger apartments and industrial properties across the US. You can connect with him at

Nothing on this website should be considered financial advice. Investing involves risks which you assume. It is your duty to do your own due diligence. Read all documents and agreements before signing or investing in anything. It is your duty to consult with your own legal, financial and tax advisors regarding any investment.

Chris Franckhauser

Vice President of Strategy & Growth, Advisory Partner

Chris Franckhauser, Vice President of Strategy & Growth, Advisory Partner for Left Field Investors, has been involved in real estate since 2008. He started with one single-family fix and flip, and he was hooked. He then scaled, completing five more over a brief period. While he enjoyed the journey and the financial tailwinds that came with each completed project, being an active investor with a W2 at the time, became too much to manage with a young and growing family. Seeing this was not easily scalable or sustainable long term, he searched for alternative ideas on where to invest. He explored other passive income streams but kept coming back to his two passions; real estate and time with his family. He discovered syndications after reconnecting with a former colleague and LFI Founder. He joined Left Field Investors in 2023 and has quickly immersed himself into the community and as a key member of our team.  

Chris earned a B.S. from The Ohio State University. After years in healthcare technology and medical devices, from startups to Fortune 15 companies, Chris shifted his efforts to consulting and owning a small apparel business when he is not working with LFI (Left Field Investors) or on his personal passive investments. A few years ago, Chris and his family left the cold life in Ohio for lake life in the Carolinas. Chris lives in Tega Cay, South Carolina with his wife and two kids. In his free time, he enjoys exploring all the things the Carolinas offer, from the beaches to the mountains and everywhere in between, volunteering at the school, coaching his kids’ sports teams and cheering on the Buckeyes from afar.  

Chris knows investing is a team sport. Being a strategic thinker and analytical by nature, the ability to collaborate with like-minded individuals in the Left Field Community and other communities is invaluable.  

Jim Pfeifer

President, Chief Executive Officer, Founder

Jim Pfeifer is one of the founders of Left Field Investors and the host of the Passive Investing from Left Field podcast. Left Field Investors is a group dedicated to educating and assisting like-minded investors negotiate the nuances of the passive investing landscape and world of syndications. Jim is a former financial advisor who became frustrated with the one-path-fits-all approach of the standard financial services industry. Jim now concentrates on investing in real assets that produce cash flow and is committed to sharing his knowledge with others who are interested in learning a different way to grow wealth.

Jim not only advises and helps people get started in passive real estate syndications, he also invests alongside them in small groups to allow for diversification among multiple investments and syndication sponsors. Jim believes the most important factor in a successful syndication is finding a sponsor that he knows, likes and trusts.

He has invested in over 100 passive syndications including apartments, mobile homes, self-storage, private lending and notes, ATM’s, commercial and industrial triple net leases, assisted living facilities and international coffee farms and cacao producers. Jim is constantly looking for new investment ideas that match his philosophy of real assets producing cash flow as well as looking for new sponsors with whom he can build quality, long-term relationships. Jim earned a degree in Finance & Marketing from the University of Oregon and a Master’s in Business Education from The Ohio State University. He has worked as a reinsurance underwriter, high school finance teacher, financial advisor and now works exclusively as a full-time passive investor. Jim lives in Dublin, Ohio with his wife, three kids and two dogs. In his free time, he loves to ski, play Ultimate frisbee and cheer on the Buckeyes.

Jim earned a degree in Finance & Marketing from the University of Oregon and a Master’s in Business Education from The Ohio State University. He has worked as a reinsurance underwriter, high school finance teacher, financial advisor and now works exclusively as a full-time passive investor. Jim lives in Dublin, Ohio with his wife, three kids and two dogs. In his free time, he loves to ski, play Ultimate frisbee and cheer on the Buckeyes.

Chad Ackerman

Chief Operating Officer, Founder

Chad is the Founder & Chief Operating Officer of Left Field Investors and the host of the LFI Spotlight podcast. Chad was in banking most of his career with a focus on data analytics, but in March of 2023 he left his W2 to become LFI’s second full time employee.

Chad always had a passion for real estate, so his analytics skills translated well into the deal analyzer side of the business. Through his training, education and networking Chad was able to align his passive investing to compliment his involvement with LFI while allowing him to grow his wealth and take steps towards financial freedom. He has appreciated the help he’s received from others along his journey which is why he is excited to host the LFI Spotlight podcast and share the experience of other investors and industry experts to assist those that are looking for education for their own journey.

Chad has a Bachelor’s Degree in Business with a Minor in Real Estate from the University of Cincinnati. He is working to educate his two teenagers in the passive investing world. In his spare time he likes to golf, kayak, and check out the local brewery scene.

Ryan Steig

Chief Financial Officer, Founder

Ryan Stieg started down the path of passive investing like many of us did, after he picked up a little purple book called Rich Dad, Poor Dad. The problem was that he did that in college and didn’t take action to start investing passively until many years later when that itch to invest passively crept back up.

Ryan became an accidental landlord after moving from Phoenix back to Montana in 2007, a rental he kept until 2016 when he started investing more intentionally. Since 2016, Ryan has focused (or should we say lack thereof) on all different kinds of investing, always returning to real estate and business as his mainstay. Ryan has a small portfolio of one-to-three-unit rentals across four different markets in the US. He has also invested in over fifty real estate syndication investments individually or with an investment group or tribe. Working to diversify in multiple asset classes, Ryan invests in multi-family, note funds, NNN industrial, retail, office, self-storage, online businesses, start-ups, and several other asset classes that further cement his self-diagnosis of “shiny object syndrome”.

However, with all of those reaches over the years, Ryan still believes in the long-term success and tenets of passive, cash-flow-focused investing with proven syndicators and shared knowledge in investing.

When he’s not working with LFI or on his personal passive investments, he recently opened a new Club Pilates franchise studio after an insurance career. Outside of that, he can be found with his wife watching whatever sport one of their two boys is involved in during that particular season.

Steve Suh

Chief Content Officer, Founder

Steve Suh, one of the founders of Left Field Investors and its Chief Content Officer, has been involved with real estate and alternative assets since 2005. Like many, he saw his net worth plummet during the two major stock market crashes in the early 2000s. Since then, he vowed to find other ways to invest his money. Reading Rich Dad, Poor Dad gave Steve the impetus to learn about real estate investing. He first became a landlord after purchasing his office condo. He then invested passively as a limited partner in oil and gas drilling syndications but quickly learned the importance of scrutinizing sponsors when he stopped getting returns after only a few months. Steve came back to real estate by buying a few small residential rentals. Seeing that this was not easily scalable, he searched for alternative ideas. After listening to hundreds of podcasts and attending numerous real estate investing meetings, he determined that passively investing in real estate syndications was the best avenue to get great, risk-adjusted returns. He has invested in dozens of syndications involving apartment buildings, self-storage facilities, resort properties, ATMs, Bitcoin mining funds, car washes, a coffee farm, and even a Broadway show.

When Steve is not vetting commercial real estate syndications in the evenings, he is stomping out eye diseases and improving vision during the day as an ophthalmologist. He enjoys playing in his tennis and pickleball leagues and rooting for his Buckeyes and Steelers football teams. In the past several years, he took up running and has completed three full marathons, including the New York City Marathon. He is always on a quest to find great pizza, BBQ brisket, and bourbon. He enjoys traveling with his wife and their three adult kids. They usually go on a medical mission trip once a year to southern Mexico to provide eye surgeries and glasses to the residents. Steve has enjoyed being a part of Left Field Investors to help others learn about the merits of passive, real asset investments.

Sean Donnelly

Chief Culture Officer, Founder

Sean holds a W2 job in the finance sector and began his real estate investing journey shortly after earning his MBA. Unfortunately, it could not have begun at a worse time … anyone remember 2007 … but even the recession provided worthy lessons. Sean stayed in the game continuing to find his place, progressing from flipping to owning single and multi-family rentals to now funding opportunities through syndications. While Sean is still heavily invested in the equities market and holds a small portfolio of rentals, he strongly believes passive investing is the best way to offset the cyclical nature of traditional investment vehicles as well as avoid the headaches of direct property ownership. Through consistent cash flow, long term yield and available tax benefits, the diversification offered with passive investing brings a welcomed balance to an otherwise turbulent investing scheme. What Sean likes most about the syndication space is that the investment opportunities are not “one size fits all” and the community of investors genuinely want to help.

He earned a B.S. in Finance from Iowa State University in 1995 and a MBA from Otterbein University in 2007. Sean has lived in eight states but has called Ohio home for the last 20+.  When not attending his children’s various school/sporting events, Sean can be found running, golfing, shooting or fly-fishing.

Patrick Wills

Chief Information Officer, Advisory Partner

An active real estate investor since 2017, Patrick Wills’ investing journey began like many others – after reading the “purple book” by Robert Kiyosaki. Patrick started with single family rentals, and while they performed well, he quickly realized their inability to scale efficiently while remaining passive. He discovered syndications via podcasts and local meetups and never looked back. He joined Left Field Investors in 2022 as a member and has quickly become an integral part of the team as Vice President of Technology.

An I.T. Systems Engineer by trade, he experienced the limitations of traditional Wall Street investing firsthand in his career and knew there had to be a better way to truly have financial freedom.

Unfortunately, that better way is inaccessible to those who need it most. His mission is to make alternative investments accessible to everyone who seeks to take control of their financial future and to pursue their passions in life.

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