Investing in a multifamily property is a great way to build equity, bring in extra cash, and lock down a hard asset. These properties include apartment buildings, condos, and townhomes. Investing in these multifamily properties is extremely popular right now, and for good reason. Rental space is always in high demand, which means maintaining a healthy cash flow isn’t a problem. In addition, multifamily financing is much easier than other commercial loans. Investing in apartments or condos is also more realistic for individuals who want a second source of income.
If you’ve been thinking about making this type of investment, multifamily loans can help make it happen. The great thing about these loans is that it’s much easier to get flexible repayment terms. You’ll just need to work with an experienced broker. At Liberty Mortgage, we help individual investors and businesses secure the loans they need to increase their bottom line and jumpstart their next commercial project.
Depending on the lender, qualifying for multifamily loans may involve a few different steps. However, there are some components most loans require. Usually you’ll need a 25 to 30% down payment. The exact amount will depend on the location and condition of the building. In addition, approval of apartment building loans could depend on the income the building will generate. On the other hand, if you’re investing in a small building, your credit history may come into play.
You’ll need to provide documentation about the building you’re trying to invest in along with personal information. If you and a spouse are trying to purchase a building, both of you will need to provide personal information. For apartment complexes, you’ll need to provide information such as a tenant list, leases, the number of total vacancies, and real estate tax information. In most cases, the seller of the property can provide much of this documentation. You may also need to provide proof of any contract the complex has with other vendors. We can help you navigate this process so it happens as smoothly as possible.
What is Debt Service Coverage Ratio?
To most lenders, multifamily properties are seen as business operations. Therefore, if you’re trying to get a loan for an apartment building, you must prove it’s capable of generating an income. The designation of a property’s income worthiness is referred to as debt service coverage ratio (DSCR). If the property only has a DSCR of 1, this means it will only make enough to cover the monthly mortgage payments. Most lenders require anywhere from a 1.2 to 1.5 for approval. You can calculate the DSCR by dividing the net operating income by the annual mortgage. Calculate the net operating income by subtracting expenses and vacancies from the amount of rent collected.
Get Financed for Multifamily Investing
The professionals at Liberty Mortgage can help you find the best commercial loan for your next investment. We also provide commercial mortgage refinance solutions to help adjust interest rates and attain flexible repayment terms. Contact us today at 281-542-7392 to get started.