Apartment buildings are a popular investment opportunity for many investors. One of the main reasons is that they offer high leverage, which means less money invested can generate a larger relative profit. 신용카드한도대출
Freddie/Fannie, HUD and CMBS apartment loans offer long-term financing with competitive rates. Other options include life companies and bank apartment loans.
1. Appraisal
Whether you are buying, selling or refinancing an apartment building, understanding the appraisal process can help you make a more informed decision. In a purchase-and-sale transaction, the appraisal assures the lender that you are not paying more than what the home is worth.
In the case of a refinance, the appraisal helps determine how much to loan you based on the property’s current condition and the value of comparable properties in the area. There are several different types of appraisals: the value comparison approach, the income approach, and the cost approach.
An ancillary appraisal is sometimes required by a lender for insurance or tax purposes. A BPO, broker price opinion, is usually less involved than a full property valuation but still provides important information.
2. Market Rents
Lenders typically treat an apartment building loan a little differently than a single-family home mortgage. “They might require a bit more qualitative information about the borrower’s experience owning and managing properties, collecting rents and handling expenses of a larger property,” says one Wells Fargo bank manager.
An apartment complex’s cash flow is derived from gross rents (rental income) less operating expenses. Lenders, appraisers and underwriters use a document called the rent roll to assess this. The rent roll provides the most up-to-date details of rental history and occupancy, including current tenant names, lease terms and security deposits.
The Covid-19 pandemic reduced demand for commercial real estate, reducing rents and driving up vacancy rates. This year, slower delivery growth and widespread vaccinations should improve vacancy and draw more interest in apartment buildings.
3. Lender Requirements
A loan for a multifamily property may require slightly different underwriting from a single-family home. “Loans for larger properties typically take longer to approve because the lender will ask more qualitative information about experience with owning and managing commercial real estate,” says Kreutz.
Several types of apartment loans are available, depending on how strong your credit is and how long you plan to keep the property. One option is a CMBS loan, also known as a conduit loan. These nonrecourse commercial mortgage backed securities loans can be used for most multifamily projects. They are packaged and sold on the secondary market after closing.
Other options include FHA/HUD-backed apartment construction loans and conventional commercial loans that are later securitized by Fannie Mae or Freddie Mac (when they are converted to amortized loans). These types of loans often come with strict covenants.
4. Down Payment
Apartment buildings are considered a riskier investment than one-to-four residential properties and typically require a higher percentage of down payment. Whether you’re purchasing a new construction building or buying a resale, a minimum of 20% down is generally expected by developers and sellers.
It’s also important to keep in mind that upkeep costs, insurance and mortgage payments can significantly affect your bottom line. Be sure to calculate these expenses into your projections before making an offer.
Some lenders offer nonrecourse loan options that won’t allow the creditor to seize a borrower’s personal assets in case of default. This type of financing may cost a bit more but can be well worth the extra expense for some investors. Some lenders will sell their nonrecourse loans to Fannie Mae or Freddie Mac, while others will retain them on their books as portfolio loans.
5. Financing Options
Apartment buildings are large investments that can provide substantial and sustainable returns. Almost no one buys these assets in all-cash and many investors use apartment building loans to facilitate their purchases.
Bank loans, agency loans, HUD loans and CMBS (commercial mortgage backed securities) are the most common financing options for apartment investing. These options generally offer competitive interest rates and lenient debt to income and loan to value maximums.
Those seeking to increase their leverage can use a second-position loan, known as mezzanine financing. This is a good option for experienced multifamily investors who can demonstrate the ability to manage and maintain a property. To maximize the odds of securing an apartment building loan, investors should focus on preparing well for underwriting by meeting lender requirements and providing the most complete application they can.