How flexible are net worth requirements for agency loans?
I'm in the process of looking for a MF property at the moment. This is my first time doing this solo so I'm still learning the ropes a bit. I posted something related a while ago and everyone was incredibly helpful. Figured I'd ask Reddit on this too.

I spoke with a lender who mentioned there's usually a requirement of having a net worth greater than or equal to the loan amount. With the money I have earmarked for this that puts me at around 60% LTV. It also puts me in a property a bit smaller than I've been targeting (not interested in self managing).

My first thought was to ask a friend to pitch in a small amount of equity. Our assets combined would be more than sufficient. But I'm not sure how viable this is. Other option in my head was to just be generous with cap rates on my other investments when filling out the personal financial statement. I'm not that far off from the loan amount so it would get me about where I need to be. Wondering if anybody has thoughts.
[{"id": "esam1yx", "text": "Don\u2019t lie on your PFS you\u2019ll get fucked if things go bad.", "replies": [{"id": "esasvwh", "text": "Noted. So keep that extremely conservative?", "replies": [{"id": "esau4pb", "text": "Keep it honest", "replies": [{"id": "esb1nxk", "text": "Yeah, being dishonest wasn't ever on the table. I was thinking more like when I'm assessing the value of assets I'm in, if comps are selling at between 4 and 6 caps using a 4 cap.", "replies": [{"id": "esbb09d", "text": "State a value and the value method.", "replies": [], "depth": 5}, {"id": "escjsp7", "text": "&gt;if comps are selling at between 4 and 6 caps using a 4 cap.\n\nThat is way too broad a range for cap rates.  That would put a $50,000 NOI worth between $833,000 and $1,250,000.  I would say the 4 caps are not comparable to the 6 caps.", "replies": [{"id": "esecn5a", "text": "It's an example to demonstrate what I was talking about", "replies": [{"id": "esezcet", "text": "Well, why not make it realistic?  A good 95% of people talking about real estate have a complete misunderstanding about cap rates.  Now more people will think paying 2 points under market cap is OK.", "replies": [{"id": "esgbl7b", "text": "Because I didn't want to log onto RCA and research what prevailing cap rates are for a property I don't manage and haven't paid attention to in years before responding to a comment on Reddit. My job is an entirely different market and I don't know exactly what cap rates are where this property is. I picked two numbers to get across the concept of the question I'm asking.", "replies": [], "depth": 8}], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "esat5sb", "text": "The more equity, the less in guarantees the lender needs. I would talk to the lenders and ask what they are comfortable with. Every lender and deal is different. \n\nWhy don't you go to the existing lenders you have on your other deals? They already know you as a sponsor and will give you better terms. \n\nIf you need to fudge cap rates to get a higher ltv, then it sounds like you're reaching for a higher price than you can soundly afford.", "replies": [{"id": "esb05un", "text": "He's talking agency, so there isn't much negotiation available on the term sheet.", "replies": [{"id": "esccuqe", "text": "LTV can be negotiated albeit not a given.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "esax6wf", "text": "Consider asking for an exception if the property leverage is low enough or there are other mitigating factors. Talk to a broker and/or lender to gauge appetite.\n\nHere is the exception guideline for Freddie's Optigo Small Balance Program:\n\n&gt; Borrower principal net worth (1x UPB) or liquidity (9 months amortizing debt service) requirement not policy compliant", "replies": [], "depth": 1}, {"id": "esbjeey", "text": "Definitely don\u2019t falsify your PFS, you sign bad boy carveouts that will make your loan recourse if you lie. You can always bring on another partner to help with the NW/liq requirements but that may not be something you\u2019re interested in doing. if you bring in a friend they will need to be a KP and will need to sign the carveouts. You can always get new appraisals on your existing portfolio to get an accurate net worth, although it will be pretty costly (~$5K/property)\n\nI have seen Fannie and Freddie go below the requirements on certain occasions but as with everything it depends on the specifics of the deal.  There needs to be mitigating factors such as low leverage, little IO, significant RE experience or track record, 3rd party manager reputation, SREO and ability to generate future business. \n\nHave you considered going with a balance sheet? Depending on what market you\u2019re in balance sheets can compete and beat the agencies and will often have more flexible prepays. They will likely be recourse, though.", "replies": [], "depth": 1}, {"id": "esiwu71", "text": "I manage an agency lending group. When I look at an REO schedule, I look mostly for experience managing similar type of assets. If all the experience is with 1 - 4 family homes and the client is buying a 150-unit project, that would be a big red flag, no matter what the NW. \n\nThen, I look at liquidity. Cash in the bank provides a lot more comfort than NW - you can\u2019t pay your mortgage with book value. \n\nOther considerations that I\u2019d prioritize over NW in the SREO are \na) loans maturing over next 24 months and make sure that I feel comfortable that the client will be able to refinance those loans based on LTV (assuming the LTV\u2019s don\u2019t look out of whack) and DSCR\nb) dscr\u2019s to make sure nothing is bleeding cash\n\nThe requirement of NW = loan amount is really the last thing I look at just to make sure it checks the box. \n\nIf your REO schedule doesn\u2019t evidence experience operating similar assets, I\u2019d consider bringing on a partner who could bring resume strength as well as NW.  You might have to give up a piece of equity since the lender will prob want them to also sign on the bad boy carveouts ... but you\u2019ll have a much easier time getting the loan and will be building your own resume so that you can show the requisite experience next time around.", "replies": [], "depth": 1}, {"id": "esjgk9z", "text": "You need to find a Key Principal who is willing to lend their balance sheet and liquidity to the deal for a cut of your side of the equity. This happens all the time in syndications. You'll have an easier time if it is non-recourse. Expect to give some on your first or second deal so you can grow and not have to do it later deals.", "replies": [{"id": "esjkt8k", "text": "Does this person need to have a sizeable portion of the deal? I have a family member who is willing to lend her balance sheet. I don't want to be in the position of managing more than a trivial amount of her money though.", "replies": [{"id": "evz6zdi", "text": "That's negotiable -- In syndicated deals, where there's a GP/LP structure, I've seen deals structured from 5-25% of the GPs side of things. In non-syndicated deals, I've seen 5-10% of the deal being offered to a non-managing KP. They will typically take a % of the transaction fees (acquisition fee), from the ongoing cash flow, refinance proceeds, and from the proceeds of the sale.\n\nMost KPs I know will lend their balance sheet, leaving the management of the property up to the main GP sponsors. That said, this is only on non-recourse debt because they are only signing on the carve-outs and trusting just that you won't commit fraud or other intentional acts to destroy the property's value (bad-boy acts). The other thing that is important for KPs to know is that the lender may look to them, especially their liquidity, if the property gets into trouble and needs a cash infusion.\n\nFor your family member, you aren't managing their money. They are just signing on the loan and showing proof of their net worth and post-closing liquidity in exchange for a cut of the deal for their troubles and risk. Again, non-recourse debt minimizes that risk. Recourse debt can have serious impacts on their credit and finances if the property fails.\n\nIf you don't have equity capital, you will still need to raise money from investors who may or may not be signing on the loan as KPs depending on your situation. If your family member is contributing cash, you will be managing their money in the deal. In that case, you may be able to offer them a higher cut of the deal for both their contribution and their signing on the loan.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "esmumcl", "text": "Commercial lender here. Not sure what institution you spoke with but generally net worth isn\u2019t too important in the small business sized loans. For example, I don\u2019t care about net worth at all. It\u2019s typically all about cash flow.", "replies": [], "depth": 1}]