How do I qualify for a Apartment complexes!?

7 Replies

What are major qualifications to purchase an apartment complex?

How much down, how much personal income do I need, how much in reserves?

@David Wiser for a 1.5 million multi family, you need $300K down. What you want to have in reserves will depend on if you want to hire a property management company to collect rents,etc or if you'd do that yourself. Also, the condition of the property will influence reserves.

Are you actively looking?

Thanks,

Ray

Good question. I am also interested in apartments. Just got my first 5-unit apartment rehabbed and rented. It was relatively easy since it was a 1031 exchange and I was able to pay cash. It was really cheap, but it's all cash flow. Now I'm looking for something bigger, say around 20 units. Most lenders want 20% down to finance a commercial property. How do you get into ownership without 20% down? Find an owner and make them an offer with seller financing? What do "hard money" lenders offer?

David, You do need a decent income for financing. There are plenty of loan officers that would quote you numbers and let you know what you may qualify for.  I am a big believer in insurance for accident claims. Consider an umbrella policy too. They are very reasonable and can give you a couple of million dollars of liability coverage. Remember what your insurance deductible is and factor that into your reserves.

@Dave Pate When you say the will want you to have decent income are they going to be looking at DTI Ratios the same as they do for residential? Is 70k-90k decent?

Financing for apartments and commercial property is very different from residential. First and foremost is that the income from the property will limit the amount of the loan. In general the four  restrictions and factors determining what loan terms will be is lowest amount based on the following:

1. LTV - Loan to Value - most loans are priced at par based on an 80/20 LTV the higher the leverage the higher the rate.

2. DCR Debt coverage ratio. (as computed by the lender with applicable reserves). Like LTV most loans are priced at par(market) at a 1.20 to 1.25 DCR. The higher the DCR the better the terms.

3. Loan to Cost - applicable for new construction and recent acquisitions. Most commercial lenders lend on lesser of actual purchase price or appraisal.

4. Experience - If you do not have it, put together a team with professional managers and experienced operators.

Lastly, loans under 1,000,000 almost always have full recourse so credit is a high priority. Loans over $3,000,000 can usually get away from recourse. The wild west is in the $1,000,000 to $3,000,000 range where there are hundreds of variations. I have found that the larger loans are usually easier to do just because the economy scale makes these deals more attractive to a broader range of lenders.

Nicolas Paez

Job of 70k to 90k isn't weighed as much as reserves.

You could have a job making 200k a year but spend it all. Conversely you could have a job making 90k a year and have saved half of it for 10 years and with investments be sitting on 1,000,000.

Put 700k down and have the rest in reserves.

Lenders want to know you have funds for a "liquidity event" even if you do not need to use them. Checking, savings, CD's, stocks, 401k, IRA's, cash value of life insurance policy etc.

@David Wiser

Cash and a history in the business. And good banking relationships.

Originally posted by @Dave Pate :

Good question. I am also interested in apartments. Just got my first 5-unit apartment rehabbed and rented. It was relatively easy since it was a 1031 exchange and I was able to pay cash. It was really cheap, but it's all cash flow. Now I'm looking for something bigger, say around 20 units. Most lenders want 20% down to finance a commercial property. How do you get into ownership without 20% down? Find an owner and make them an offer with seller financing? What do "hard money" lenders offer?

David, You do need a decent income for financing. There are plenty of loan officers that would quote you numbers and let you know what you may qualify for.  I am a big believer in insurance for accident claims. Consider an umbrella policy too. They are very reasonable and can give you a couple of million dollars of liability coverage. Remember what your insurance deductible is and factor that into your reserves.

 I second the need for insurance for accidents (slip and falls), I get at-least 2 a year in my grocery stores.  Get a umbrella policy too. 

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