September 12, 2014
If you want to become a landlord, you need to understand the concept of apartment building mortgages. These are commercial real estate investments that generate rental income for the proprietor. To get the lowest rate apartment loans, here is some essential information that every investor should know.
Commercial real estate mortgages are either offered as adjustable or fixed rate of interest. The fixed rate option is considered more beneficial as rates are still historically low. However adjustable rates are also historically very low tied into the 30 day libor rate. The 30 day libor has be at .47% or lower since January of 2009. So you are looking at a rate of well under 3.00% these days. Apartment financing usually has a amortization of 25 or 30 years. Most fixed rate apartment loans mature in 5, 7 or 10 years when the fixed rate period is up. However, some convert to adjustable rate mortgages for the remainder of the amortization period.
Apartment loans are Commercial mortgage and have different requirements than residential loans. Rather than assessing your income and the how long you have been employed, the loan underwriter requires debt service coverage ratio. This is calculated by dividing the monthly mortgage payment by the rental income from the property. Usually there is a minimum 25% down payment on purchasing an apartment property.
The closing costs of most apartment loans are usually a one point origination fee, the cost of the appraisal and other third party report, plus title and escrow fees. Community Banks, Commercial Mortgage Brokers and private lenders offer loans on apartment buildings. It is important to make sure the apartments you choose to buy are located in a good neighborhood with ongoing tenants. A real estate agent can help you find rental properties in the right locations.
Investing in an apartment complex is really like starting or buying a business. There are obviously easier ways to invest your money. Although called a passive investment, an apartment complex investment really does take your overseeing the management, the maintenance and the quality of the tenants if you are to be successful.
Applying for commercial apartment loans has become easier due to the increase in independent commercial mortgage banking and brokerage firms. Many lending companies are prepared to approve mortgages with lower rates than the traditional banks. As the collateral is secured against the property, the risks are lower, thus the reason the loan to value is as high as 80 percent.
It will most likely save you a lot of time if your find a competent commercial mortgage broker to prequalify you and the property for the right lenders. They will be able to match the money you have to put down, your experience and financial strength with the right apartment loan program. Be prepared to put between 20% and 30% down on most apartment loans. You will also need what is called post-closing liquidity. You will need to have from 12 months of mortgage payments to 15% of the loan amount in savings after the loan closes.
Apartment Loan Store is a independent commercial mortgage firm specializing in funding apartment buildings since 1997. We have an A+ rating with the Better Business Bureau and a 97% success rate of closing our loans as proposed. Call one of our friendly loan specialists at: 866-811-9515.
John Lydecker, Brand Manager, Apartment Loan Store