Investing in multifamily properties can be a rewarding venture, but you need the right financing to make it happen. We’ve put together this guide to get you off the ground on the right foot.
Apartment building loans require special considerations compared to those for single-family homes, so selecting the right lender is essential for getting the best possible deal on your investment property. This will guarantee that you receive a competitive rate for your loan.
1. Appraisal
An appraisal is the process of estimating the value of real estate. This type of valuation is essential when purchasing or selling a home, or refinancing an existing mortgage.
Appraisals are usually performed by licensed professionals who analyze various market data to calculate the value of a property. When doing so, they take into account factors like condition, amenities and location to arrive at an accurate assessment.
The appraiser will also take into account any renovations or improvements made to the property, which could help boost its value.
2. Market Rents
Apartment financing based on fair market rents is one of the most widely-used types of housing loans. HUD collects data from multiple sources and surveys to calculate a unique fair market rent for each of America’s 2,500 metropolitan areas, creating unique rates across each area.
Investors must pay special attention to this factor as apartment construction and leasing demand rise, particularly in metros with recent large rent spikes.
Rising interest rates are driving landlords to raise prices in order to cover costs. This leads to higher costs for tenants and higher vacancy rates as a direct consequence.
4. Financial Strength
Apartment financing is a crucial element of multifamily investing, whether you’re purchasing or refinancing existing properties. It’s essential to secure the best financing terms possible so that you can maximize your return on investment in the property and make a profit. Financing options include conventional loans from banks and other financial institutions, as well as multifamily private money loans from accredited and non-accredited investor funds. No matter the type of financing, it’s essential to understand your debt service coverage ratio (DSCR). At Janover, we collaborate with various lending sources in order to help our clients find the ideal multifamily financing for their property.
5. Lenders
Apartment financing is a competitive market, with numerous lenders competing for your business. To stay informed on your options and choose the most suitable financing solution for you, it’s essential that you understand them.
If you’re looking to finance your existing apartment building or buy a new one, government-backed multifamily loans from Fannie Mae, Freddie Mac and FHA are great choices. These loans have fewer regulations than bank balance sheet loans and may be ideal for first-time borrowers when working with an experienced intermediary.
These loans range in amount from $750,000 to $6 million and usually provide low interest rates. However, these are more regulated than bank balance sheet loans so it’s important to adhere to the guidelines.
