Commercial Loan Blog

April 4, 2014

Due diligence is of essential importance, because if investors do not do their due diligence in regard to multifamily loans, they can lose valuable money and time – and may even lose their opportunity to purchase the great apartment building they've been dreaming about.

Due diligence is of utmost importance in every step of acquiring an apartment building: from being knowledgeable about multifamily properties, to choosing a viable multifamily complex, to the final steps of owning the property.

The inexperienced apartment investor might skip over vital…

April 3, 2014

What is a commercial apartment loan? It is commercial financing for a multifamily complex of five units or more – usually on a commercially zoned lot. A duplex, triplex, or fourplex would not qualify for a commercial apartment loan, because those are considered residential properties, and are usually zoned residential. However, if the residential units are in contiguous buildings of five units or more, or if there are five units or more on one tax lot, they can qualify for a commercial apartment loan.

One to four unit rental properties will be able to be…

April 2, 2014

Fannie Mae apartment loans are easier to qualify for than conventional community bank loans, which are regulated by the Federal Reserve and have more stringent underwriting guidelines. At Apartment Loan Store, we consider our Fannie Mae loans “lite doc” or “stated income loans.” This is because tax returns are not collected, and we do not do a debt-to-income or global ratio. Furthermore, we are not required to have the borrower fill out Internal Revenue form 4506 (authorizing the lender to get a transcript from the IRS of your tax returns, showing they have been filed…

April 1, 2014

Fannie Mae apartment loans have some of the lowest rates and best terms available in America today for multifamily properties of five units or more. In 2013, Fannie Mae purchased and guaranteed loans from mortgage lenders totaling $28.5 billion dollars. Fannie Mae pools these loans and sells them as mortgage-backed security investments on Wall Street. Here are some of the terms of a Fannie Mae apartment loan:

March 31, 2014

As it applies to commercial financing and business loans, debt service coverage ratio, or DSCR, is the percentage of the net profit left over after loan payments are made. DSCR is the percentage of the annual debt service, or ADS, (annual principal and interest) of the net operating income (gross rental income minus expenses). The full name for this calculation is Debt Service Coverage Ratio, or DSCR, but in commercial lending this is usually shortened to DSCR. A loan on an apartment building that has a NOI of $146,000 and ADS of $96,500 has a DSCR of 1.51 – or 1.51…

March 30, 2014

If you are just starting out in commercial real estate and want to function in this world, you need to become fluent in and have an understanding of capitalization rate, also known as cap rate. This is because commercial realtors, commercial appraisers, and commercial lenders all use cap rate to determine the accurate current value of a commercial property. 

Here is the easiest way to comprehend cap rate: Cap rate is simply the rate of return on the value of the property prior to financing. If you are interested in purchasing an apartment building in…

March 29, 2014

What is non-recourse financing? It's a type of financing sometimes available for commercial real estate loans. "Recourse" simply means that the lender is requiring a personal guarantee from the borrowers or key principals on the loan. "Non-recourse" means that no personal guarantee is required. On a recourse loan, should you not be able to make your payments, and if a judicial foreclosure takes place, the lender can go after you personally for the deficiency. Yes, they can obtain a court judgment against you and go after everything you own – your bank and stock…

March 28, 2014

How do you choose the right apartment or commercial management company? Will your management company run lean and mean for you? Will one of its priorities be that your investment makes a good profit? Will it keep your tenants happy by handling requested repairs and maintenance items quickly and thoroughly? Will it keep the property in pristine condition so that future tenants want to live there and the current tenants are proud to live there?

Let’s start out by realizing that a commercial property is a business. The number one reason businesses fail is due to…

March 27, 2014

Most community banks borrow money wholesale and sell it to you as an investor in apartment buildings at retail. So how are apartment loan rates determined? Most banks borrow money from other banks or from the Federal Reserve, and almost always on the short term (which means they have to pay it back on the short term). These community banks know their cost of funds and add on a margin of profit.  

Apartment loan rates start with what is called an index, such as U.S. Treasury Yields, the Federal Funds Rate, or Prime Rate. A margin of basis points (each basis…

March 26, 2014

Another important item to consider when contemplating the rehab of a multi-family property is when and how to schedule a property inspector visit. The visit should be scheduled before signing the purchase contract, if possible. At a minimum, you can have it written into the purchase contract that you have 30 days to have the property inspected. Some sellers will pay for an inspection pro bono, but in most cases you will have to foot the bill for this. A licensed commercial property inspector will write a report detailing all the work that needs to be done, plus the…

March 25, 2014

Did you know there are big differences between commercial apartment properties and residential investment properties? In some ways it’s like two different planets. The differences are vast.

It's important for you to know the differences. Investors new to commercial apartment properties (also known as multifamily properties) or any kind of commercial properties need to become familiar with the differences between residential investment properties. It's very important to do so before moving into the arena of owning commercial properties.

Before we go into…