With property values plummeting in areas such as Florida, more and more investors and turning their focus from single family housing to multifamily apartment buildings. In the past the main reason why investors choose apartment building is because they like the idea of having the tenants pay down the mortgage and pay the expenses of the property as they enjoy the benefits of real estate appreciation, and if purchased and financed correctly the owners can receive a monthly income similar to what most people make on a regular 9-5 job. Apartment building ownership is no longer suited for just the handy man type investor, as more management companies have become more competitive to handle the head aches associated with tenants for a fee of just 7 – 10 percent. Again it goes back to buying right, with the property financing and apartment ownership can be put on auto pilot.
Multifamily Investing allows for greater cash flow and minimizes risk as you have numerous tenants, when compared to investing in single family homes. This increase cash flow makes it possible to hire a management company and to cover other cost involved with owning a multifamily apartment building.
Even in today's declining real estate markets such as Florida, multifamily apartment properties have proven to be one of real estates most stable investment vehicles. And as foreclosures continue to increase, people most find somewhere to live and although some may move back in with family, majority will turn to renting apartments, which as a result will cause low vacancy rates for apartment building, I guess there is a silver lining in this sub prime mortgage meltdown after all. This will lead to a boom in the demand for rental multifamily apartment properties. According to the Mortgage Bankers Association, when it comes to commercial properties, there as been a significant decline in the demand for loans on most commercial property types and minimal decline for apartment buildings.
With Multifamily apartment properties being a preferred property type for most government agencies such as Fannie Mae, makes financing readily available whether buying or refinancing an apartment building. Despite the recent credit turmoil, lenders are still offering 75 to 80 percent financing at attractive rates. As investors check out risk-tolerance levels and other issues involved in owning other commercial property types, multifamily apartment rental loan programs will more than likely prove to be more attractive.
Now if you are considering buying an apartment building, it is important to note what lenders are looking for from borrowers. They like borrowers that have established multifamily experience, managing tenants and usually at least a 680 credit score.
When it comes to the property, they like to see a debt service ratio of 1.20, which means that the property is able to cover the expenses on its own, without assistance from the borrower's personal income. Also they don't like properties that have a lot of deferred maintenance, delinquent rent payments and occupancy issues, as these are signs of poor management and as a result poor marketability of the property. This will raise concerns for the lender as now they will be concern with how the property will match up to competing apartment buildings in the rental market over the long haul.
Although there are lenders out there for the borrowers with lower scores or for a rehab type situation, you will find yourself in a short term and expensive loan with rates ranging from 12-18% and also a loan to value of 50-60%. These types of private loans are short term are mostly suited for the experienced investor that like to rehab and flip properties.