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Apartment Building Loans
Amanda had a question on a real estate investor who has a 35 unit apartment building needing to refinance out of a bridge loan. The apartment building was purchased needing work. As a real estate investor of 7 apartment complexes consisting of 3,000 units, lenders require the following:
1. Summary sheet of the purpose of the loan and property detail. Location. What condition is building in A, B, C, D tier and what type of area is the apartment in A, B, C, D.
2. Personal financial statement
3. Three years of tax returns for conforming traditional commercial loans
4. Current P and L and rent roll which is current and proforma. Eventually need copy of leases. Need to itemized income and expenses which includes insurance, property tax, payroll, utilities, maintenance, water, and third-party vendors. Number of units, and approximate square footage. Number of rooms, bedrooms, bathrooms, and does it have dining rooms. Parking spaces or carports.
5. Type of work done and itemized cost
6. Real estate purchase contract
7. Appraisal if available and estimation of value of the property
8. How many are market rent, and section 8 housing
9. Comparable rents in the area for studio, one bedroom, two bedroom, etc.
10. What type of loan program does the borrower prefer and/or expect: Recourse, or non-recourse. How many owners to the property. Is property individually owned or in a LLC or partnership. Traditional conforming commercial loan or hard money loan, or bridge financing.
11. Any deliquent outstanding bills such as mechanics lien, tax liens, or pending lawsuit.
We can start with this before we have a meeting with Dianne and see what type of loan program suits the borrower.
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8 Replies
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Thank you Gus, I appreciate it!
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To qualify a residential commercial building the method is as follows: you take 95 percent of all the rents allowing for vacancy. Then subtract all expenses such as repairs, maintenence, taxes, etc. You end up with net operating income. This net operating income will be the numerator of the equation. To calculate denominator you calculate the principle and interest of the loan. So take net operating income and divide by the principle and interest to come up with the debt service ratio. Most commercial lenders prefer 1.2 ratio. Lenders may go lower or higher then this but 1.2 is a good rule of thumb.
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I just talked to a friend of mine that builds senior living centers and multi family apartments… He said apartments are the place to be right now…
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I love this idea. It is something I am very interested in. Once I get traction with the Accounts Receivable & picking up commercial loans from banks & CUs, I am going to dive into this area.
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I loved Gustan’s comprehensive evaluation of Loans for Investing in Apartment buildings. I am currently beginning to work in the financial industry, however, I have followed it for over 40 years. Now that I have partially retired, I want to learn more specifically what I can about investing and then teach that to others who have the ability, yet lack the knowledge necessary in order, to take them through the actual steps of successful purchases, management, and even the sales of apartment buildings. It’s exciting for me to see people succeed with their dreams. It may be possible for me to purchase an apartment building one day as well.
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James, it was a pleasure speaking to you this afternoon and evening. I am so sorry to hear about Karen Enslin not feeling well. Hope and pray for Karen’s speedy and quick recovery and wish her and her family well.
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Good point, Alex. Use our non-QM loan calculator unless Dianne Burnett advises otherwise. Remember, Amanda, whenever you do commercial loans, cash-flow is the utmost importance for any commercial lender to make the deal work. The gross income, less expenses, equals adjusted income.
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