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August 2, 2016

How to Finance Multifamily Apartments

Multifamily apartments offer a unique investment opportunity. As the populations in metropolitan areas rise, so do the needs for housing. That need is well-addressed by apartment complexes. Owning a complex can be lucrative, if handled properly, but that’s an investment that will require capital. And the party that invests that capital will want to know more than your credit history.

Loan Requirements for Multifamily Apartments

Since owning multifamily apartments is more than just owning a home or even a business, your investor is going to want some additional information. They’d like to see that you’ve owned rental property before, or at minimum that you’ve got some experience in the industry. The details of the property are important too; if the property is currently housing tenants and turning a profit, then you’ll just need to make the case that you are capable of continuing that. But building a new building, or refitting an old building to suit your requirements, will necessitate a bit more. Producing a solid business plan that indicates your intentions for turning the space into a livable, desirable home for multiple families will go a long way toward turning your investors in your favor. Most of those looking to purchase an apartment building will have set up an LLC – a limited liability corporation. An LLC provides an individual with some protection in the event the business fails, and a lender might feel more comfortable with seeing that you’ve taken that step. Other financiers might like to see that you’ve got a down payment, or that your assets will offset the liability of the new venture. Most will want to feel confident that the property can act as collateral against the loan, and that the loan-to-value ratio is appropriate for the transaction.

Types of Loans for Multifamily Apartments

There are several different avenues for financing available. You might choose a standard small business loan, or if you own a successful business already, you might find that alternative financing is more suitable. Alternative financing will build on the capital structure of your business to provide you with more options that may, in the long run, cost you less or carry less risk. Speaking to a finance professional about your options specifically will help you determine the best path forward in your unique situation. Take the time to explore every possibility and the benefits and drawbacks of those possibilities, so you can choose the avenue that fits your needs without excessive cost to you.

Seeking out financing to purchase or build multifamily apartments will be best accomplished if you know what your options are, and know what you need to produce in order to secure the desired capital.