Published January 14, 2012
Can I qualify for an apartment loan if I have very little to put down? Almost all multifamily loans require a minimum of 20% down plus closing costs to purchase an apartment complex. Even before the recession this was the requirement. On average, apartment lenders require 25% down for 'A'-quality permanent multifamily financing. Keep in mind that a lender will want you to have what is called "skin in the game," to approve you for apartment financing. In other words they want you to risk a good chunk of your precious cash, too. They view the risks of an apartment loan the same way they view a business loan. Apartment lenders have experienced that entrepreneurs that put very little down on a business loan – let's say under 15% -- have a much greater chance of defaulting on their loan payments if things get tough. The same loan officers often make commercial loans, and a commercial investment usually fails for the same reasons businesses fail: poor management or being under-capitalized. So the more you put down, the more resourceful you will be to overcome obstacles. In other words, you will be willing to fight like the dickens to keep your apartment building running smoothly and profitably, and thus protect your investment. Furthermore you will be more likely to make your multifamily loan payments on time.
Fortunately, there is a solution if you have less than 20% to put down on an apartment loan. And it probably will not be owner-carry financing, which if allowed by your apartment lender will not eliminate the lender's requirement for you to have 20% skin in the game. The solution is for you to find a partner that has some cash to invest
with you to jointly make the 20% down plus closing cost requirement. In order to attract an investor, you will have to find a great apartment complex to buy. One that probably is in decent condition, with cash flowing amazingly well. I assure you that such a property will enable you to attract an investor who will have the opportunity to make a much greater return on their investment than the stock market. You can likely keep a larger share of the ownership of the property just because you put the time in to find the property and do your due diligence.
By Terry Painter, President