Financing Multifamily Apartments For Beginners
Are you considering taking the leap into owning and managing multifamily apartments? Getting started can be simpler than it looks. You’ll need financing, and that financing needs to be sound and cost-effective. You’ll want to save as much as you can on interest and additional financing costs, and doing so will mean having all of your information appropriately available in order to maximize your opportunities to borrow.
Most lenders hope to see that your financial history is strong. They’ll conduct a credit inquiry, and examine the reports to find signs of proper financial management. If you’re purchasing the property under an LLC, they’ll ask for financial statements. They’ll want to see personal and business tax returns as well. All this is an effort to judge your ability to repay the capital you’re borrowing. Special attention will be paid to your net operating income, your debt service coverage, and the loan-to-value ratio. The lender is attempting to ascertain that you’re capable of repayment if the business should experience a temporary loss of income for any reason.
On top of your financial information, the lender is going to want to see the financial information for the multifamily apartments you intend to purchase. Hopefully, that property has a history of a steady profit margin. The lender wants to know that the apartment building can pay for itself without interference. Mixed-use apartment buildings, that include some retail or other space, might be particularly helpful in this regard, but only if the space is largely residential and only minimally commercial. The structure of a lending agreement for a commercial space is subject to far more scrutiny and is written far more conservatively, so you’ll want the property to be deemed to be majority multifamily apartments in order to simplify the process and maximize the advantages.
First-timers should take care to ensure that all the major finance points are well-covered in order to make the process go as smoothly as possible. Know what’s required by your lender, and check over your documents carefully to ensure that the information you present to them shows you in the best possible light. Be ready to offer explanation for anything that isn’t self-explanatory or entirely positive. Know the terms of the different arrangements, and be ready to discuss those as needed. You’ll find that the lending process is much smoother for those that are well-versed in the different aspects of it, and that it’s much easier to get what you need if you can provide your lender with what they need.