Borrow More than Cost of Apartment?

Question

I will soon buy my first building, a 14 unit apartment.  US Bank has offered to loan me $300,000 more than my cost of the building.  The $300,000 is for capital expenditures.  Problem is, I don't know if I need that much for capital expenditures.  Should I still accept the loan with the extra $300,000?

Bruce Woodruff · Answer

Ummmm..... I dont know. They obviously want you to borrow the max so they can get more return out of you. On the one hand it is nice to have some extra funds hanging around, but will they get frittered away on unnecessary things? Possible. Do you need that much extra or do you have a slush fund of your own for rainy days?

And can you find somewhere to park the money where the interest you're getting is enough to cover what you're paying? Or are you just losing money every month?

Just my thoughts....

Charles Carillo · Answer

@Bill SmithI would consider accepting the funds and placing the additional funds in a savings account or money market. If you go over budget (very common); you can pull funds from this account without going back to the bank. After the project is complete and rented; you can send the funds back to the bank. The thing with borrowing money is when you really need it; it is difficult to get.

Bill Smith · Answer

Thank you for all your replies!

Caleb Brown · Answer

How much are you currently budgeting for Cap ex? Does it need anything? How filled is it, any vacancies?

Colleen F. · Answer

@Bill Smith  Does it cash flow with the additional loan?   Get a contractor in to estimate the reno then figure  20-25%  over. That is the loan I would take if it  will sufficiently cash flow with that loan. You should also have some reserves.

Borrow More than Cost of Apartment?

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