How to Finance the Purchase of an Apartment Building
Planning to buy an apartment, financing the deal is a very important phase of the transaction and you must be well aware of the ways of commercial financing. The process starts with the identification of the property, and once you are satisfied with it, then the next steps to follow are:
- Analyze the income of the property: For this calculate the net operating income and to know the actual loan amount that you can apply for find out your debt service coverage ratio which must be around 1.25.
- Analyze the market rents based on the rents collected by nearby apartments of the same quality and service and determine where you stand in the matter of collection of rents
- Estimate the appraised value of the property based on the Cap rate of your building and that of the surrounding similar properties
- Analyze the condition of the property, and be aware that the lenders will not be interested to grant you a loan if the property you want to buy is very old or located in an undesirable locality or it requires extensive repairs in a short time
- Know your credit score and a score of 680 + will be required and anything below will be viewed as a bad score by the lenders
- Research lenders for your category of loan select the right one to get the required financing for your apartment.