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Apartment Building Loans | Differences Between Apartment Building Loans and Traditional Mortgages

Not everyone can purchase and run a multi-family home. It’s a business, a property investment, a financial risk, and a commitment all rolled up into one. Apartment buildings are outstanding investments, but they are also not as simple as a home loan.

Those with multiple property investments know what these types of purchases involve, and should sign up with CRE Lender today to start receiving information on great apartment building loans. But for those that have never invested before, the following represent some of the many differences between apartment loans and traditional mortgages.

Commercial Property Loans for Apartments

  • Investment

While it is still possible to receive an FHA loan that reduces the initial investment costs of an apartment mortgage, commercial loans are going to require a significant down payment. That’s because lenders want to see that you’re invested in the outcome of the property. Unlike a home loan, where the buyer is invested simply because it’s their primary residence, an apartment building loan requires enough extra work on the part of the borrower that unless you’re financially invested yourself, many lenders will not take the risk.

  • Business Model

Lenders also know that with any property there is a considerable amount of risk, and when it comes to commercial loans, they want to know that the risk is mitigated because the apartment is rented, renters are on lease, the apartment has insurance, and so on. Lenders are not likely to fund a project for a building that is vacant, even if you have a “great idea” on how to fix it. They want to see that you’re going to make the very first payment because you have enough renters that the first few payments are already guaranteed.

  • Net Operating Income

Lenders also want to know that you’re receiving an ROI that is better than the investment by a significant margin. Apartment building loans expect you to receive a return on your investment – a net operating income – that is as high as 1.2 to 1.3, after accounting for the costs of taxes, utilities, vacancy estimates, maintenance services, accounting, and other expenses that will eat of some of your rental profits. If you can provide a higher net operating income, lenders will feel more confident that financing the property is a good investment.

A Tough Process With a Great Outcome

Apartment building loans are more difficult to qualify for than home loans and other property loans, but that doesn’t mean that they’re not a great investment. Those that are ready to invest in a great property can find the financing they need to succeed as long as they know where to look, and if they receive help along the way.

Sign up with CRE Lender today to find out more about our apartment rental loans, and to start receiving information on excellent loans and lenders. 

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