Insight Series - A Week of A CFO - Part 2: Debt Structure and Deal Analysis
Dear Friends,
For years, real estate investors have been chasing the dream of passive income through single-family rentals, fix-and-flips, and Airbnb properties. And while these strategies have their merits, and all of us here at Level 7 have done some from of the above, the reality is that they come with high volatility, operational headaches, and unpredictable cash flow.
At Level 7 Investors, we’ve transitioned into a smarter, more scalable approach: commercial multifamily investments. The biggest ways that helped us in our transition has been Debt structures and deal analysis. These play a massive role in risk mitigation and long-term wealth creation.
Let’s dive into why financing is the secret weapon of sophisticated investors and how our approach to seller financing, traditional lending, and deal underwriting allows us to build wealth while reducing risk.
Debt Structures: The Engine Behind Smart Investments
When investors look at real estate deals, they often focus on property appreciation and rental income, and while these are key concepts an investor must also understand how the deal is being financed. Are the operators using bridge debt, do they plan on refinancing the loan, when do you as an investor get your principle back, are there any seller financing or creative financing involved. Understanding this is the hidden ninja secret to maximizing returns.
1. Seller Financing: A Creative Path to Ownership
Seller financing is one of the most underutilized but powerful financing tools in real estate. Instead of dealing with banks, we negotiate directly with property owners to structure low-interest, flexible terms that reduce upfront capital requirements and improve cash flow from day one, while reducing the tax burden from a sale for the previous owner.
Why It Works for Multifamily: Many retiring landlords are looking for a steady income stream rather than a lump sum. We structure deals that give them monthly payments while allowing us to acquire high-quality assets without institutional financing hurdles. You can also typically pay closer to asking if you control the terms of the financing.
Biggest Advantage: Lower closing costs, faster acquisitions, and no reliance on today’s volatile interest rate environment.
2. Traditional Lending: Optimizing Debt-to-Equity Ratios
Banks and institutional lenders still play a key role in larger transactions. However, we structure our financing with a focus on:
Long-term fixed-rate debt to hedge against interest rate hikes.
Non-recourse loans, which protect investors from personal liability.
Bridge loans we typically only use these in specific circumstances like repositioning assets before refinancing into long-term debt.
3. The Power of Debt Stacking
For larger multifamily deals, we layer different financing options to create the best risk-adjusted returns:
Primary Mortgage: Traditional or seller financed.
Mezzanine Debt: Additional leverage with investor-friendly terms. Mezzanine debt is a hybrid financing option that sits between traditional senior debt and equity. It typically carries a higher interest rate but offers more flexible repayment terms. It is often used to increase leverage while minimizing equity dilution, making it a powerful tool for acquiring and repositioning multifamily properties.
Preferred Equity: Partnering with strategic investors for shared upside. Preferred equity is a form of investment where an investor contributes capital in exchange for a fixed return before common equity holders receive distributions. It is typically structured to provide priority payments over common equity but without the foreclosure rights of debt financing.
Example: Suppose we acquire a 100-unit apartment complex for $10 million. We secure $7 million in senior debt, $2 million in preferred equity from an investor offering a fixed 10% return and contribute $1 million in common equity. The preferred equity investor gets their priority 10% return before any profits are distributed to common equity holders, ensuring they receive stable, predictable income with lower risk than common equity investors.
This approach allows us to maximize leverage while minimizing risk, ensuring each deal is optimized for investor returns.
Deal Analysis: The Blueprint for Success
Acquiring multifamily properties isn’t just about securing financing. Without rigorous deal analysis, even the best financing structure won’t save a bad investment.
At Level 7, our underwriting process focuses on:
Cash Flow First: If a deal doesn’t produce strong cash flow from day one, we walk away.
Market Analysis: We target high-growth areas with strong job markets, population growth, and economic stability.
Rent Growth Projections: Understanding how rents will perform over 5-10 years is critical for long-term success.
Expense Optimization: Multifamily properties allow for economies of scale—reducing per-unit costs compared to single-family rentals.
Exit Strategy Planning: We model multiple exit scenarios to ensure strong investor returns regardless of market fluctuations.
This meticulous approach reduces risk and ensures predictable returns, something that’s nearly impossible with single-family rentals or short-term Airbnb investments.
Why We Left Airbnb, Fix & Flips, and Single-Family Rentals
When we started in real estate, we invested in single-family rentals, Airbnb properties, and fix-and-flips. Over time, the cracks in those strategies became clear:
Airbnb: Highly dependent on tourism trends, seasonality, and ever-changing regulations.
Fix & Flips: Short-term gains but high risk, labor-intensive, and heavily taxed.
Single-Family Rentals: Limited scalability—one unit, one tenant. Vacancy means 100% income loss.
Compare that to multifamily investing:
Built-in diversification: 20-50 units under one roof means consistent cash flow even if a few units are vacant.
Professional management: We leverage property management teams that we train instead of being hands-on landlords.
Tax advantages: Depreciation, cost segregation, and 1031 exchanges create significant tax benefits.
Simply put: Multifamily offers better risk-adjusted returns, predictable cash flow, and scalable growth.
Call TO Action: Register for Our Exclusive Webinar
If you’re ready to transition from volatile, small-scale real estate investing into commercial multifamily properties that generate passive income, join us for our upcoming Level 7 Investors Webinar.
📅 Date: March 13th 8:00 PM EST
📍 Register Here: https://level7investors.com/webinar/
We’ll cover:
✅ Why we left Short Term Rentals, Fix and Flips, & Single-Family Rentals
✅ Why we believe multifamily is the superior investment model
✅ How we analyze deals and what to look for in a market
✅ Type of Returns we look to provide our investors with
✅ A live Q&A with our investment team
This is your chance to learn how to scale your real estate investments while minimizing risk—directly from experienced multifamily investors who have been in your shoes.
Seats are limited, so be sure to register now!
Click here to reserve your spot now!
https://level7investors.com/webinar/
Final Thoughts
Every week as a CFO is filled with challenges, opportunities, and a relentless focus on how to bring the best deals to our investors. This week was no different. We have two deals in the pipeline, but after extensive analysis on the deal and the returns we want to provide investors and the type of people we were working with we decided to pass on one of the opportunities. This is crucial to a good operator, you must know when to walk away. If something doesn’t feel right, it probably isn’t, and you should move on.
If you’ve ever considered investing in commercial multifamily real estate, I’d love to see you at our webinar.
Thanks for being part of our journey. If you have any questions, feel free to reach out to me —I’d love to hear your thoughts!
To your success,
Manny Del Val
CFO, Level 7 Multifamily Investors
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