Apartment Mortgages | When Are Apartment Mortgages Good Investments?
One of the most effective strategies for investing in properties is to purchase apartment complexes. Renters always provide a steady source of income, and in today’s economic environment and apartment complex often represents a significantly improved ROI than any single family home.
But because few investors have the capital to purchase a multi-family complex in cash, most investors will need to take out apartment mortgages.
Mortgages, Payments, and Rates
Once you start to deal with lenders, you realize that not all mortgages are created equal. Depending on the loan you choose, you may cut into your profits or even find it difficult to make the necessary payments. Lenders differ in their requirements of you as well, and the rates that they will provide depending on the status of your own personal finances and the property itself.
That’s why it could be argued that not all apartment mortgages represent a good investment. While apartments are still excellent ways to build your property investment portfolio with some of the best returns of any type of property, you still need to make sure that your loan doesn’t affect how much you can make from the property and its value, and if you choose a loan with unfavorable terms, that’s what it’s going to do.
Choosing the Right Apartment Mortgages
Ideally, what you need to do is figure out your net operating cost and the profit you can receive from the investment after the mortgage is accounted for. Lenders actually look at this information themselves before offering you any type of loan.
The net operating cost is the amount you take in from rentals, subtracting every possible expense (including the likelihood of vacant rooms) and figuring out what the percentage of the revenue you’ll be able to pocket. Everything needs to be accounted for, including maintenance costs, insurance, and regular pool cleaning, water use, or landscaping. Usually lenders like to see a ratio of 1.2 or more, indicating that you receive roughly 20% more in revenue than the operating cost.
Lenders have their own strategy for looking at the net operating cost, and are likely to request an estimate from you. But you should also consider creating an idea of the net operating cost yourself keeping in mind the apartment mortgages and making sure while you’re paying off the loan, you’re profiting enough to pay off any contingencies.
Apartment mortgages where the payment terms or interest rate make running your property difficult or costly may not be in your best interests. Instead you may need to shop around further and try to find a better rate, or wait on the investment until you can afford to lower the LTV. No matter what, if you’re concerned that the apartment mortgage is going to cut too much into your revenue, it may not be the one for you.
Getting Started With Your Apartment Mortgages
The apartment lending market can be difficult to navigate, but CRE Lender is here to help. Let us find you the best rates on terms that help you profit. Sign up for more information today and get started on your apartment mortgage needs.
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