Looking For Financing Apartment Building Investment?

by Andy Austim

Financing apartment building investments can be tricky and take both time and effort. A beginner can often overlook important steps. Because of this, it is best to work with a commercial lender with experience in financing apartment building investments.

A large down payment is one of the things necessary for securing a loan to finance apartment building investment. Of course, this expense means that not everyone can qualify for a loan.

When you are purchasing an apartment building, you need for the rental income to cover the mortgage repayments as well as other operating costs such as maintenance, ongoing work contracts or advertising. In bank terminology, this is referred to as the Debt Service Coverage Ratio, or DSCR. You can figure the DSCR of a property by dividing the Net Operating Income by the amount of mortgage paid over a year, or the debt service.

Along with determining if the DSCR will be acceptable, expect to pay between 20-30% of the acquisition cost as a down payment. If you cannot afford the down payment of an apartment building, considering growing your wealth with single family homes and return to apartment building investment when you have more money.

If you can afford the down payment, you need to figure out if the DSCR of the apartment building you are thinking about purchasing is at least 1.2 or greater. Anything less than this will result in a denial of a loan.

If the DSCR number is between 1.0-1.2, you would be either breaking even or doing slightly better. This is not good enough for you as an investor or the bank as a loan giver, but these buildings still have potential. If the properties have everything else that you desire, consider making a lower offer or increasing your down payment to increase the DSCR over 1.2.

Working with an established commercial lender when financing apartment building investments will enable you to quickly realize the profit potential of the properties. An experienced commercial lender will also be able to lead you through the process and possible pitfalls better than a residential lender could.

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