Apartment Building Loans: the Equity Required

Apartment building

How much money do I need to put down to buy an apartment building?

We get this question often from investors buying apartment buildings or apartment complex.  The good news there are many loan products available to investors of multifamily properties.

A loan secured by a first mortgage is often referred to as the Senior Loan.  When focused solely on first mortgage lenders the maximum leverage is as follows: 85%, 87% or 90% of the project’s value for market rate, qualified affordable or qualified rental assistance properties, respectively.  This loan comes with loan term and amortization of 35-years.  While the interest rates for these loans are low the closing costs can run a little greater than some other loan products.  As a result, we recommend considering this loan product with loans $3 million and higher.  (More information on this product can be found at https://caffreyloans.com/fha-hud-section-223a7/).

Agency Equity Requirements:

Agency loans through Fannie Mae and Freddie Mac can go to 80% of the value.  Both of these lenders have amortization schedules to 30-years.  Fannie Mae offers loan terms up to 30-years while Freddie Mac does not offer this long of a term.  Both of these lenders have attractive programs starting at $1 million.  If you have multiple properties being financed at the same time both Fannie Mae and Freddie Mac will consider loans as low as $750,000 if tied to other transactions. (For detailed information on these loan products please go to https://caffreyloans.com/loan-products/) .

CMBS equity constraints

Commercial Mortgage Backed Securities is another alternative with financing on the Senior Loan to 80%, with less underwriting restrictions than Fannie Mae or Freddie Mac.  You may have heard of Commercial Mortgage Back Securities under different names such as; Conduit, CMBS loans, or Wall Street Originated loan.  If you need more leverage than 80% on loans over $3 million we can bring in a mezzanine piece to bridge the gap between 80% and 85%.  The blended rate between the Senior loan and the mezzanine can increase the overall interest rate by five or six basis points.

Other lenders that offer higher leverage are portfolio lenders.  A portfolio lender holds the loan on their books.  HUD/FHA, Fannie Mae, Freddie Mac and CMBS lenders all sell their loans into large loan pools.  A few of these portfolio lenders offer non-recourse loans while the majority of these lenders are recourse lenders.  In recourse loans, the owner(s) must personally guaranty the repayment of all or part of the loan.  A few of these lenders will consider loans to 80% of the value with most limited to 75% loan to value.  These lenders have shorter fixed rate terms and amortizations schedules up to 25-years.

Other lender requirements:

Lenders have different requirements, some require the owners to have four or more other multifamily properties under ownership or management some of our lenders do not have this requirement. Other lenders require the occupancy be at 90% or greater for the preceding 90-days prior to closing while some do not.  A few of the lenders have post-closing liquidity requirements equal to or greater than 9-months principal and interest payments some lenders do not have specific post-closing liquidity requirements.  Some lenders will only go to the top 50-MSA population centers while others will consider smaller markets.  Understanding the apartment building loan underwriting criteria for dozens of lenders is our job.  We overlay your loan request with the lender(s) that offer the best loan product to help achieve your overall goal.  We work for you to find the best financing solution.  We have a nationwide presence.

Please email or call an expert in apartment building loans for your next investment.  Mike Caffrey 913-402-7077 or [email protected]