In the world of investment properties, owning an apartment complex can be one of the best purchases you can make. It’s important to understand how it differs from other properties before deciding if an apartment is the right choice for your investment dollars.

What is an apartment building?

The first thing to understand is what type of rental property counts as an apartment building. A building with five or more units is considered a multifamily property or an apartment. This means that duplexes, fourplexes, and condominiums do not fall under the apartment category when it comes to investment properties.

Financing an Apartment Building Purchase

Because an apartment building differs quite a bit from other real estate properties, including other multifamily buildings like duplexes, the financing process is also different. There are various ways to finance your investment property purchase, including:

Bank loans.

These are similar to traditional mortgage applications, can last up to 30 years, and have fixed, variable, or hybrid interest rates.

 

Private loans.

Sometimes going through a bank to buy an apartment can be too complicated, or your application might be denied. This is where you may want to consider private loans for an investment property purchase. However, these types of financing options often come with higher interest rates and more fees.

Tips for Buying an Apartment Building

One of the biggest differences when borrowing money to purchase an apartment building is the type of information your lender will ask you to provide. They’ll want to know your background in owning and managing rental properties. You will also need to provide the standard information on your financial situation, including:

  • Personal income
  • Business income
  • Credit score
  • Tax returns

You’ll also be asked for a down payment, which should be around the 30 percent mark.

Before you apply for an investment loan to buy an apartment building, it is a good idea to gather a lot of information on the building itself. This includes, for example, when it was built, what amenities are on the property, how many units, and the rent roll. The rent roll is simply a rundown of how much rent each unit pays, how many tenants there are, and the number of bedrooms and bathrooms for each unit.

If there are commercial tenants on the property, such as retail stores on the first level, lenders will still treat the building like an apartment rather than a commercial property. However, if there is a 50/50 mix of commercial and residential tenants, you should discuss this with a professional mortgage broker.

When you are calculating the cost of an investment property purchase, don’t forget to include extra expenses like closing fees, appraisal costs, inspection costs, title and escrow fees, property insurance, and any other reports you’ll need to secure your purchase.

If you are interested in learning more about buying an apartment building, call Northwood Mortgage™ at 888-492-3690 or contact us here.