Understanding the Various Apartment Financing Options

Posted by Chris Goulart on March 4th, 2020

Investing in real estate properties is a huge decision as a lot of money is involved here. It can be challenging to get financing especially for multifamily properties like apartments. However, today you can find several apartment financing options that make investments in such properties easier.

Are you looking to invest in an apartment building? Typically speaking this is a large investment, and you should be doing your diligence in full before moving forward.

What you should look for in an investment?

Three essential factors must be kept in mind while making investments - especially in the multifamily buildings.  These three key elements include net operating income, cash flow and capitalization rate.  Understanding these elements and how to calculate them is essential to making a good investment decision.

How to find Apartment Financing?

Apartments can be classified as residential or commercial depending upon the number of units. Accordingly, the type of apartment financing varies from residential to commercial properties.

Conventional Financing Options

For residential apartments, meaning 1-4 units, investors can apply for conventional loans. If one of the units of the building is owner-occupied then they can opt for Federal Housing Administration (FHA) loans, Veterans Affairs (VA) loans, or conventional financing.

For commercial apartments (5+ units)many of the more conventional products simply don’t apply. For these apartments there are lenders who focus on and specialize in apartment building financingas a commercial loan product.

Other Financing Options

• Equity Share Investor

Such an investor owns equity in the apartment building in return for financing the purchase. The equity share investor is entitled to a percentage of the cash flow on monthly basis and a percentage of the profits upon the selling of the property.

• Real Estate Syndication

Real estate syndication is pooling of funds from multiple investors used for providing investment property financing. The common forms of the syndication include real estate partnership and real estate crowdfunding.

1. Real Estate Partnership: In this case each partner gets something for their share of investment. Share in the equity is the most common form of real estate partnership.
2. Real Estate Crowdfunding: Here, two options are available. The first one is you can invest without money and be responsible for the management of the investment. The second option is that you can invest with little money and earn passive income.

• Hard Money or Private Money Lending

Hard money lending today is a very viable option for financing commercial apartment buildings. There are many different terms to choose from – short term interest only options all the way to fully amortized 30 year term options.

• Multifamily Short-Term Loan

Short term loans for financing a multifamily property purchase typically offerterms ranging from six months to 3 years and payments that are interest only. These loans help keep payments low during the term of the loan, and can be good for acquiring distressed properties that can be improved to increase cash flow.

• Multifamily Long-Term Loan

Long term hard money apartment loans are typically fully amortized over 30 years.  Rates can be attractive, with loan to values up to 70-75%.  Credit does not come into play as heavily as it would with a bank loan, and the DSCR required can be as low as .9.

Author Information:

This article is written by All California Lending, a firm that specializes in commercial financing options including apartment financing and more. To find out more about their services visit https://www.acalending.com/apartment-building-financing/