Apartment investing with $250k?

4 Replies

Hello, I am selling a condo I rent out in Silicon Valley. I will net about $250k and I would like to invest that money as a down payment into my first apartment building. Let's say the apartment I buy is $1M and I put down 25% and borrow $750K -- I will have no money left over for monthly payments on that amount.

So my question is, will a bank consider rental income from occupancy as income for the loan? Or, do I need to prove other sources of income to secure the loan?

@Jason Rowlett They will include income from the rental.  Depending on the size (i.e. is it 4 units and under and a normal loan or more than 5 and a commercial loan) then your other income may need to be included or may not...USUALLY the stronger your income is regardless of source the easier and cheaper the loans are.  I know it is a vague answer but not sure what size of property you are going after.

There is a lot of variation on the answer to that question. Its good question. so do most don't unless you are already a land lord. If you are a seasoned and experienced landlord, then half of them will. If not, a lot of them will still do it if you have an excess of 30% down and it was a fannie or freddie product allowing it. At least that's the way it was 3 years ago when I was still originating those types of loans. Now I just build apartments

4 units are less can let you get a conventional loan and fix the rate 

I'm not an the lending side, although I've had a few conversations about this and I've been doing my own research.

My understanding is, assuming you're an experienced landlord (however they determine that, sometimes 2-years experience), they will underwrite the asset itself, which means that it has to cash-flow as-is, and already have all the necessary reserves for R/M and CAPEX. In addition they'll require the purchaser to show that they can weather a certain bit of adversity like storms/insurance claims, vacancies, etc and want to see another amount of reserves in the purchaser's accounts. I think they'll want several (maybe just 2) months of debt service -- to show that in an emergency, you can pay the note for a bit until re-stabilization.

So, the answer to your question as far as I know is yes, the lender will consider the property's own income for the loan. However, I would think that those numbers probably wouldn't work for most lenders -- the purchase price might have to be lower to have a lower down payment to leave more in reserves.

Start talking to lenders -- they're a dime a dozen and you'll get answers!  And each one will try to sound like they know everything and act as though they have all answers and options - they don't, just keep talking to more!

@Jason Rowlett As others have said 'it depends' it depends also on the lending institution. A small local bank will behave differently than will a national bank. The best time to talk to a lender is when you don't need the money. You have the beginnings of a good plan-more doors. I would start talking to lenders pretty soon it really helps to know where you can get money, what kinds of terms and at what cost. It will help even more when you are looking at potential deals. Sellers want to know that you can close this deal and not having them worry that a month or two from now they have to start over because financing was not really there.