Inbvest in Multifamily
If you've been involved in the real estate investment industry for a number of years, you've probably thought of owning an apartment building. Perhaps one reason is you became aware of the many benefits it provides investors such as higher cash flow, straight-forward management, and significant tax deductions.
In general, an investor is use a commercial property loan to obtain financing for 5 or more unit buildings. Among the most popular kind of apartment buildings investors obtain financing for are Garden style apartments, Mid-rise apartments, High-rise apartments, Student Housing and Assisted Living buildings.
Typically, we work with loan amounts that range from $750,000 up to $25 million and they are placed as an agency loan or non-agency depending on the overall deal.
When applying for a commercial multi-family loan, the primary concern for lenders is the monthly rental income from the building, operating expenses, net operating income, and the debt service coverage ratio. Particularly, while the loan is in underwriting, lenders are seeking some form of guarantee that the property will be able to pay the new loan payments during the term of the loan.
However, where home and commercial real estate appraisals differ is commercial (which includes multifamily) uses the income-based method to determine the value. In this approach, value is obtained when the appraisers divide a property's current or projected NOI by the capitalization rate (or "cap") for the area.
This valuation method is a very good measure of value because it can be done when there are no similar properties for sale or sold. Moreover, this income-based system offers you greater flexibility to A) raise rents, B) lower operating costs, or C) both, to raise the property's appraised value.
The minimum down payment is usually 20-25 percent. However, depending on the property’s gross rental income (GRI) is and the operating expenses and appraised value is how much the lender will lend.
Different Apartment lender sources have their own minimums. Bank and credit unions tend to have maximum LTVs of 65 to 75 while others may be lower. Agency Apartment loans offer the best terms, rates, and fees. They typically lend on buildings that have proven cash flow and debt service ratios above 1.20.
If you find yourself not able to qualify for a 5-units or more property using these sources one can use the DSCR loan on apartment buildings and mixed-use residential properties. The maximum LTV with this product is 70 LTV for multifamily apartment buildings and 65 LTV when it is mixed-use residential.