THE LOGISTICS OF OBTAINING COMMERCIAL LOANS FOR APARTMENT BUILDINGS
Apartment buildings are often considered one of the easier investment properties to fund due to the fact that the subject property is looked at as a primary repayment source. Also, since these properties have historically been part of a stable asset class, they are eligible for some of the best lending terms available.
Single family homes, rather than apartment complexes, are often the focus of property investors due to their ease of management. However, financing can be more difficult to obtain on smaller properties, making it difficult to get a new business off the ground. Many investors recommend focusing on the property in question, rather than yourself when dealing with commercial lenders.
Due to the high-return and low-risk of default apartment buildings yield, loans, even with minimal capital, will often be approved. Under commercial loan guidelines, buildings composed of five or more units are eligible for a commercial loan. Duplexes and Four-Plexes are considered residential-properties and cannot be funded under this program.
When managed correctly, apartment buildings can offer tremendous profitability. For example, let’s analyze the following scenario:
| Gross Income | $100,000 |
| Less: Operating Expenses & Vacancies | (60,000) |
| Net Income (Profit) | $40,000 |
From the information above, we can calculate the estimated property value by dividing the Net Income by a specified cap rate. In the above example, $40,000 divided by 0.07 yields an estimated property value of $571,428.57. Statistics like these are frequently used by commercial lenders to determine the cash earning potential on apartment complexes. Naturally, it is easy to see how these loans are approved so easily.