Multifamily Commercial Loan Assumption

4 Replies

Hello All,

I am currently planning a move to Chattanooga, TN, from South Korea. I am doing some "window shopping" on apartment complexes there. Below is a link to a listing for a 42 unit apartment complex with an option to assume the mortgage. It's currently listed for $3.1M and has a $1.68M remaining balance. If I were to purchase this complex for the asking price and assumed the $1.68M balance, would I have to pull out another loan($645,000) to meet a 75% LTV required by lenders? Or is the loan assumed by me without a down payment? I hope I expressed this clearly. I am simply educating myself on real estate as much as I can and couldn't quite find the right answer to my "what if". Thank you for your help.

https://commercial.gcar.net/jsp/search/results.jsp...

Hi Cody! So there are several questions you would want to ask the seller. First, if they are selling for 3.1 and they have 1.68 remaining, it sounds like to me you will need to come up with another 1.42. So if you were coming in with that remainder in cash, I don't think you would have a problem with any LTV issues with the lender. However, if you would need to take out a second mortgage on a portion of it, what you would need to find out from the lender is how they would work with a co-op mortgage broker. You may also want to find out from the seller if they have a "subject to" option available. I am sure some other folks on here can also offer some great and/or better advice, but that is just my take on it. :)

Have you asked what is the cap rate for this apartment complex. Generally they should post it. Yes if you buy for 3.1 and assume the remaining debt, you need to pay the balance cash.

Several things to note:  On an assumable loan you would come up with the difference between the loan balance and the purchase price.  You might be able to get a lender to do a second to come up with some of that difference but at those numbers it will be really difficult.  

Secondly, that is a very high price to pay for a C class property in an area where rents are still somewhat low (it's transitioning) and they are struggling with occupancy (83.3%).  That property has been on the market for some time, and actually I believe may be under contract to a group of investors from out of town.  Regardless, outside of bad management with high vacancy like they have you will have even more if you start pushing up prices without upgrades to the property to keep tenants there.  

Lastly, If you have experience in multi family on this level then great.  But if not, you're better off starting with something smaller.  Much more forgiving that way.  

Originally posted by @Brian Levredge :

Several things to note:  On an assumable loan you would come up with the difference between the loan balance and the purchase price.  You might be able to get a lender to do a second to come up with some of that difference but at those numbers it will be really difficult.  

Secondly, that is a very high price to pay for a C class property in an area where rents are still somewhat low (it's transitioning) and they are struggling with occupancy (83.3%).  That property has been on the market for some time, and actually I believe may be under contract to a group of investors from out of town.  Regardless, outside of bad management with high vacancy like they have you will have even more if you start pushing up prices without upgrades to the property to keep tenants there.  

Lastly, If you have experience in multi family on this level then great.  But if not, you're better off starting with something smaller.  Much more forgiving that way.  

Thank you for your reply, Brian. I had a feeling it was a bit inflated in price. I thought that the assumable loan might be an indicator of a distressed property or at least one that was poorly managed. This is a deal that's a little out of my price range, for now. I was just speculating. As I look for multifamily properties, do you have any suggestions on areas to pay attention to in my search? Or is this a topic I should search for another thread...

Thank you again for your help. Your insight was very valuable.