Apartment Purchases | Steps to Buying an Apartment
Many people looked at the housing crisis in 2008 and decided that it was no longer worth investing in property. It turns out that was not the case. While the housing market proved to be too volatile for some investors, apartments are still a valuable investment option that may be perfect for your portfolio.
Apartment Purchases – What’s Needed
Purchasing an apartment is a large investment, and does take some capital. Most lenders will not even consider a loan application unless the buyer can provide roughly 20% down or more, and since some multifamily homes cost over $2,000,000 or more, that can be a substantial investment.
But if you can secure the financing, apartments represent a very valuable tool for seeing a return on your investment. If this is something that interests you, the following are the necessary steps to lead you towards apartment purchases.
- Get Pre-Approved – It’s best to get pre-approved first before you start shopping for an apartment. It can take a long time to find a place worth buying, and pre-approval makes the lending process much easier.
- Find An Active Apartment For Sale – Unlike home ownership where lenders may be willing to help you purchase a home that’s been empty for years and in disrepair, lenders do not provide funding unless you can prove profitability, and that means finding a complex that’s for sale that is already filled with tenants. While not everything needs to be perfect, only apartments with renters are likely to get financed.
- Work Out a Price – As with any type of investment, if you’re not getting a good price it’s not worth the ownership. This is especially important for apartment loans. Rates and down payments are often based on the purchase price, so the more you pay for the apartment, the more you pay for the loan as well.
- Calculate the Net Operating Income – Lenders also want to see the net operating income (which is the total in rent collections divided by every single operating expense – even a bi-yearly pest control service) is greater than 1.2, indicating a profit. The net operating income is important for lenders, but it’s also important for you, because you need to make sure that this property is going to pay you back.
- Decide if it’s Worth Living – You may also want to consider moving into the apartment. Some lenders will be more likely to provide a loan at a better value if the borrower is also living in the apartment. In addition, if a family member can run the apartment this may decrease your operating costs and also make you more attractive to lenders.
- Prepare to Secure the Loan – Finally, once you’ve gone through these steps you’ll need to start working towards the most important part of your apartment purchases – buying the apartment.
With CRE Lender, we’ll help you with all of the paper work and make sure that you’re able to secure a loan at a great rate for your investment needs. Sign up with us today to learn more.
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