Getting financing is a key part of buying an apartment building. It’s a big part of “where do I get the money”, which is probably preoccupying most of your thoughts going into a deal.
A lot of this can be solved with a good mortgage broker.
Your local bank may have a commercial mortgage loan officer and because of your familiarity with the bank and the staff there, you may be tempted to try and finance your transaction with them.
Tip: Resist the temptation. a) because they likely only have loan programs that apply to fully stabilized property, and b) because if you don’t qualify for the few programs they have they will say you can’t get financing for your deal.
Instead work with a commercial mortgage broker to finance your deal; ideally one with a “can do” attitude and creativity.
Commercial mortgage brokers have hundreds, often thousands of commercial mortgage programs to choose from, not just a few as with your local bank. Whatever the nature of the property you are buying, a commercial mortgage broker can find a loan that will fit both the property and you as the Buyer.
Obviously, they have a broad selection of loan products for already stabilized property. Read more…
If you are having trouble finding money to fund your deals, it is because of one, two, or all three of the following factors.
1) The deal you are trying to fund isn’t (very) profitable. The old truism of real estate investing bears repeating; when you have a deal that is hot, the money will find you. Money is always looking for a safe place to grow and multiply so when a hot deal appears in front of investment capital, the certainty of the return makes it highly attractive. If you have a hot deal, all you have to do is make it known you have a hot deal (to private money sources) and the money will be freely available.
Your problems arise when the deal you are trying to fund isn’t so hot (price too high, no value plays), the certainty of the money being returned comes into doubt, and investors have to start thinking about risk and weighing other factors. The deal can still be done, but you need to start contacting more money sources and start selling the merits of the deal to get investors interested. As a general rule though, if private lenders, bridge lenders, and other investors aren’t falling over themselves to fund or buy your deal, it is the quality of the deal itself that is the problem, and you should think twice about buying it.
2) The people you are asking to fund your deal aren’t interested in the deal you have. Depending on the specifics of your deal, there is a variety of lender who has risk capital available to fund it, but you must match the right lender with the part of your deal, or you will hear a lot of talk about ‘what can and cannot be funded’. People love to talk about themselves, and what a lender or investor means when they start telling you your deal can’t be funded is … they can’t fund it. They neglect to tell you that there is another investor out there with a taste for funding exactly the type of project you have, because they see the world through the lens of what is important to them in their own little world.
This is a brief interview of Stephen Rosenberg, the CEO of Greystone, being interviewed towrds the end of last year about trends he sees happening in multi-family. Greystone is a multi-family lender based in New York City.
Of the number things he speaks about, the one thing that jumped out at me when he mentioned it was long term fixed rates at 2.5%.
Think about that for a second.
The Fed has been making funds available to banks for close to 0% for a number of years now, and I think we must be getting used to it. Maybe it’s mentioned on the news enough that it just goes in one ear and out the other. However, for multi-family investors who have been around for a while, i.e. since before 2001, we recognize that 7-8% is more normal.
It’s time for a reality check.
Although it’s unlikely interest rates will be going up in the next few years, rest assured, there will be a point in the future when they do start increasing again. It might be five years, it might be ten years, who knows. But when interest rates do start inching upwards, everything will change, and the opportunity that today is staring apartment investors in the face, the ability to buy good solid properties with long term 2.5% fixed rate mortgages, will be gone.
If you are in any way interested in apartment investing, now is not a time to hesitate. Now is a time to act.
Truthfully how does one buy an apartment building with no money down? I mean, the idea of buying an apartment building with a multi-million dollar price tag, without putting any money down just seems preposterous! Is it real? Can it be done?
It is very real, and yes, it can be done. There are probably a few thousand apartment entrepreneurs across the country doing it right now. Let’s break it down and look at it, because once you understand apartments a little more you’ll see that buying this way is just the most effective way to put deals together.
First of all, “no money down” is misleading. There are always down payments made on apartment deals. Paying a down payment is the only way for a lender, or seller if owner financing, to minimize the risk they incur by extending purchase money financing. The more down payment the buyer puts in, the more likely they are to make the payments. End of story. So no seller or lender is going to extend 100% financing on any apartment deal, there will always be a down payment required.
However as an apartment entrepreneur, you don’t put up your personal money for a down payment. To cover the down payment, closing costs, fees, earnest money, rehab cost, and any cash requirement the deal has, the smart thing to do is use Other People’s Money.
In French, entrepreneur means ‘problem solver’. Let’s face it, an apartment entrepreneur’s entire brief is to take a property which is essentially just a giant mass of problems, and one by one, sometimes two or three at a time … solve them. And that applies at the very beginning, when you are buying the property.