Buying an Apartment Building, Lending After the Purchase

11 Replies

Hey there BP Folks! My name is Ken. I don't post on her much, but I have a question. My wife and I are looking to finally dive into Apartment building investments. We are purchasing a rental right now, and then taking out the equity in our home and buying a 8+Unit Apartment Building this summer. Anyways, I was talking to our conventional financing lender about this next step, and she mentioned that unlike new residential loans, their company won't be able to use the income from the leases on the new apartment building until we file our taxes in 2019, and then they would use the income from our Tax Statement. 

My Question is, is this common for Conventional financing lenders to not use apartment building leases as income until our taxes are filed the next year?

So pretty much I'm looking for a lender in Minnesota, Saint Cloud, areas that might be able to help me out, or someone that is looking to sell their apartment building in the Saint Cloud or surrounding areas. I am always looking for deals!

@Tim Swierczek is an expert and can help you out.  I think you are talking to someone who doesn't know RE very much.  For some loans you will need 2 years of rental history to include the income for loan purposes.  You likely need a commercial/portfolio loan anyhow and she probably can't help you with that. 

Sorry, I forgot to mention. That I am wondering how I can use the income in the same year after purchasing the apartment building, as far as buying a single-family with a conventional loan after having the apartment building.

You need to work with a commercial bank. Not your conventional mortgage person. They usually sell all their notes to Fannie and Freddie. The banks I work with value it on cash flow and cap rates, but are smart enough to value location and shape of building. I mean a 100% empty building isn’t worth zero dollars?

@Kenneth Morff If you are looking to purchase 4+ units and you will need a commercial loan. Your best bet is to talk to a commercial loan specialist directly.  Commercial lenders have different sets of requirements. 

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Thank you for the responses! Yea I would be looking to work with a commercial lender for the purchase on the apartment building. But I am looking at buying a single-family after, and would be buying that with a convention loan. So that’s why I was talking to my conventional lender. I just wanted to know Ignore that was going to I be an issue.

@Kenneth Morff Fannie Mae allows this if you have not yet filed taxes on the new property provided you have proof of the income, you can use 75% of the gross income vs the full PITI payment on the new apt building. Remember Fannie uses debt-to-income (DTI) but the commercial loan uses debt service coverage ratio (DSCR). This means that you could qualify with one method without qualifying for the other. Generally, I find that DSCR method is more forgiving than DTI.

@Kenneth Morff , I apologize I'm late to the conversation. As others have mentioned: in your situation it sounds like you should be working with a commercial bank.

There are times, if all the other aspects of the deal make sense, you can use a hybrid of a historical and proforma P&L if there are <12 months rental information. Your lender will need to see the executed lease as well as proof of the historical expenses, as well as, a well considered extrapolation of expected future expenses.

I'm a commercial lender in Andover / Blaine; happy to help.

Take care,


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