MultiFamily Residential Building Complex

5 Replies

Is buying a large MultiFamily Apartment complex of like 12+ units a good investment, I’m in SD area, and also it’s near a university, a class C, occupancy at 100% as states. I was wondering is there any way an investor/buyer can view past history operating income, profits, based on a financial report, tax reports from previous owner? Is all that information is to legally obtain from the owner? Also, how are banks with loaning/financing a large MF residential building? Same as buying one unit, same conventional loans apply, with same rates? Thank you, Arthur Voskanyan

Hey Arthur,

It is definitely legal for them to show you any information they would like to share with you. You will most likely have to show extreme interest and of course capability to proceed with the investment. 

They should have some sort of rent-roll & expenses to share with you. If the multifamily building is larger than 5-units, it is considered a commercial property. Finding funding on the property will be focused more on the actual financials of the building itself...rather than your personal capability to pay for the property. 

When you're looking for funding, I would highly suggest shopping around to see who can offer you the best deal for your building. 

Hope I Could Help & Happy Holidays!

So in terms of contacting a commercial lender, are he rates and loan type usually follow the same principle as regular home conventional loans?
Thank you thus far

Hi Arthur,

 Checking loan rates for residential mortgages won't help you size up your commercial loan. A few things to know:

1. Commercial loan rates are a bit higher.

2. Commercial loans more structure. You'll want to understand amortizationrecourse, and prepayment penalties.

3. A good rule of thumb is to bring 30% equity to the table (70% loan). Sometimes you can get up to an 80% loan. Don't count on it or you can get burned.

Whether or not it's a good deal, I don't think anyone could tell you unless you shared some more info (after receiving it from the seller).

 - Tim

Do prepayment penalties exist for commercial properties? Is it a common addition to the loan?

Yes, prepayment penalties can come in a few different flavors, and are negotiable with many types of lenders. Some common prepayment penalty structures:

1. Lockout - you can't prepay, or the penalty is an extremely stiff percentage, so you practically cannot prepay.

2. Declining - the penalty might start at 5% if you prepay in the first year, and decline to 1% over the course of the loan term.

3. Yield Maintenance - the lender will calculate how much they would have made on interest, and charge you the Net Present Value of that income stream to prepay. This is expensive.

4. Defeasance - a whole other topic to unfold, but is the way to prepay a CMBS loan that is held by multiple bondholders. It's not easy, fun, fast, or cheap.

Also, based on your questions, I'd really recommend either learning through working with a more experienced investor on your first deal or two, or at least surrounding yourself with an expert team (commercial sales broker, loan broker, attorney, etc).

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