Buying a property means making a commitment, especially when it comes to multifamily apartments. When you purchase this kind of property you are saying that you will take responsibility for five or more units. This process can be arduous, and you should be certain that you are prepared for the journey ahead. Here are a few hurdles that you will have to jump along the way.
First off, qualifying for a loan is not so simple when investing in multifamily apartments. The lender will want to know if you have a history managing properties or collecting rent. In order to ensure that you are of good financial standing, the lender will do a basic credit check and then research your tax returns, both personal and business.
After getting a sense of your history, they will proceed to calculate the projected net income that the property would produce. This calculation is made in order to figure out whether or not you would be able to pay off the debt comfortably. Additionally, the lender will be interested in the so-called loan to value (LTV) ratio, which determines the amount of the loan relative to the value of the property.
Qualifying for a loan is only one small part of the journey. It’s important to thoroughly research the loan options available to you. Broadly speaking, there are two types of loans, long term and short term. Long term loans last anywhere from 25 to 35 years, while short term loans last only up to 10 years. If you choose a short term loan, be aware that you may refinance at the end of the loan period. Of course, in such a circumstance, rates will be adjusted and fees will be added on.
After choosing a loan and determining whether or not you qualify, you will eventually have to compile documentation of the property and the related finances. The lender will want all kinds of information, including the following: photographs of the property, floor plans of each unit, a map indicating nearby competing properties, an explanation of the strength of your property in relation to the competitors, the rent amount and the loan amount. This list is not exhaustive, so be sure to communicate with your lender about their specific expectations.
This is only a generic sketch of the process of buying multifamily apartments. There is much more to consider, so it’s important to be rigorous in your research as you move forward with this exciting project. Don’t be afraid to seek help as there are many twists and turns that may be hard to navigate all by your lonesome.