Does anyone have insights on how much down payment is required for an apartment building? From various sources I received very different amounts, ranging from 10% to 33%. Does it vary with the type of lender? Thank you for your comments!
Yes it varies, but typically its 20-30% down. Most lenders lower the down payment if its high volume area and they don't lend on rural areas or they require 40% down
10% down is great, who is doing that?
@A Schwartz This also depends on the size (# of units) of the asset and whether you house-hack part of it and whether it is a local or national bank.
I saw the 10% just doing a general search on the internet (no specific lender named)
@A Schwartz if it’s more than 4 units, expect the min down payment on a commercial loan to be 20%. If you go with a hard money loan, you can get this down a little, to maybe 15%, and get a rehab budget. But be careful with this and remember that you’ll need to have 20% equity based on income before you try to refinance out of your hard money loan.
There are many factors lenders looks at to determine the down payment but most want to see a 1.2x DSCR (Debt Service Coverage Ratio). If a property has a NOI (Net Operating Income) of $100,000 annually but the loan payments are $100,000 annually then that's a DSCR of 1. Most banks will want to see an NOI of $120,000 annually for a property that has $100,000 annually in loan payments.
@Arthur Schwartz typically 20-35% is the amount of equity you have to bring to the table. It will vary from lender to lender and also based on your credibility and experience.
@Tj Hines . Agreed.
More important thing to consider is not how much you can leverage the property but how much can you realistically afford to leverage the property. The goal should be to stay at “nonspeculative” as possible. Even if a lender is willing to leverage a deal to 80-85% does it make sense to do so is the biggest question. Protect the back side of the deal. Have a solid plan in place to cover the debit liability and understand it is a long term asset.
@Arthur Schwartz While you already received numerical feedback to your question, your best bet is to reach out to mortgage brokers and speak with them to get a fully detailed answer.
@James Johner agreed. Considering where the market is now, we wouldn't do anything less than 70/30 LTV even if lenders were offering better
Lenders first evaluate the strength of the property. Then they evaluate borrower strength. Depending on the deal of course, expect to see a lender require 20-25% cash down. Cash Reserves will be required as well.
@A Schwartz, local banks seem to have more flexibility. The bank I am currently working with initially told me 30% but when I told them another was willing to go with 20% down they matched it. We are also able to use other properties in our portfolio that we have no debt on as collateral.
Thank you all very much! Arthur