Apartment building loans are an excellent way to invest in a multifamily property that produces a steady stream of income. However, it’s essential to understand the requirements before applying for an apartment loan. 아파트담보대출
Generally, you’ll need to put down 20 to 25% of the purchase price for a bank balance sheet apartment loan. Lenders will also consider your personal credit score, as well as the property’s location and condition.
Credit Score
If you are a first-time apartment building investor, your credit score is probably one of the most important factors in finding financing. But if you are not careful, your focus on this metric could distract you from the many other variables that go into making an investment profitable.
Moreover, the lending landscape is changing fast, so you need to understand your options. It is easy to assume your local bank is the best place to start, but this isn’t necessarily true anymore.
For instance, agency apartment loans, such as Fannie Mae OPIC and HUD 223(f), offer competitive interest rates and are non-recourse. However, these types of loans require significant experience in managing multifamily properties and a down payment that is larger than other commercial real estate financing options. Alternatively, you can opt for a CMBS loan, which is backed by the federal government and reduces the lender’s risk. This type of financing also offers more flexibility but can take longer to close.
Cash Flow
Apartment building loans tend to be backed by commercial lenders, rather than government-sponsored enterprises like Fannie Mae and Freddie Mac. This means that they are typically full recourse loans, meaning that the lender can go after your personal assets if you cannot pay back the loan.
In addition to assessing your own cash flow, the lender will also look at the building’s potential to generate income from its tenants. This is referred to as net present value, or NPV. In comparing different loan options, NPV can help you determine which one offers the best return on your initial investment.
Some lenders specialize in providing cash flow investor loans for apartment buildings. These types of loans are a great option for fix-and-flip investors who want to renovate and sell their properties quickly. These types of loans often require a high credit score, but they don’t care as much about the borrower’s personal financial standing as they do about the property itself.
Assets
A large part of an Apartment building loan applicant’s success depends on the type of assets that he or she can bring to the deal. Most lenders have specific guidelines regarding the size of an investment property, its location, its tenants and its current financial condition.
Lenders will also look at a borrower’s previous experience owning and/or managing a multifamily property. This is one of the reasons it’s often wise for first-time borrowers to work with a broker or advisory firm that can match them with the right financing options.
As a general rule, investors need to make a larger down payment (20% at minimum) on an apartment building to be able to obtain financing than they might need for a single-family home. Additionally, annual net operating income must cover a borrower’s yearly mortgage payment by at least 1.2 times in order to qualify for a loan. That’s called Debt Coverage Ratio, or DCR. It’s an essential factor for many apartment buyers.
Taxes
Apartment buildings are a great investment opportunity that can provide substantial and sustained returns. However, almost no one buys them with cash (outside of a few incredibly wealthy investors). Most people purchase them using loans, as debt increases leverage and allows them to get into the asset class without having a million dollars sitting around.
Lenders will typically run an appraisal, review a rent roll and P&L, and perform other due diligence. They will also ask for a physical needs assessment or engineering report, which observes the property’s condition and calculates replacement reserves (funds set aside each year to cover expected future repair expenses).
Getting an apartment loan is relatively straightforward, but you should understand the process before applying. If you’re looking to get into the multifamily space, consider a consulting firm that can help you navigate the loan application process. This includes understanding how different types of loans work, which ones are the best fit for your project and what the lender is looking for.