Apartment Building Financing Do's & Don'ts

[Terrence Williams]

On my journey to reach my goal of purchasing my first big apartment building over 4 units. Currently I own a hand full of single family homes and some multiplexes up to 4 units. 1031 exchanging out of them to get into something much bigger. Im on the hunt for buildings from 1M up to 5M. Before I pull the trigger I want to know what lender I will be working with. I have scheduled a meeting with 5 lender for next week. I would like to know what questions I should be asking and what things should I look out for regarding terms. The basics I question I have include DSCR requirements? Interest rate? Down payment requirements? Reserve account amount? Recourse or non-recourse loan? I know a lot depends on the deal but I want to go in armed with the right questions. Thanks in advance for any of your expertise you can share with us. Im sure it will be helpful to others as well.

Tee

[Henri Meli]

@Terrence Williams . Is this just a basic inquiry meeting or do you have some type of deal you are looking at? 

My very first meeting with lenders, I had mapped various sample financial deals (one for each lender) from the biggerpocket.com calculator, printed them in pdf color and showed the lender that I had an understanding/command of certain business terms (cash on cash, IRR, ...etc). I showed them I wasn't walking into their office asking basic questions, I could find answers online. Your conversation will be more beneficial, if you actually have something concrete to discuss. You will quickly get a sense of what's important to them for the next meeting. You don't have to purchase the deal, but have something that looks like a typical deal you will be looking at.

Be ready to provide them a clear picture of your financial power.  They will definitely ask for a financial statement form where you list assets, liabilities, debts (secure, non secure), W2, Job status, ... etc.

If you don't have anything palpable, they might just ask some front desk person or salesperson call you back. In my scenario above, I directly went talking to a senior VP. Made a big difference. Also remember that your banker can be your reference for off-market deals. In my scenario, one of the lenders I talked to called me a few months later and told me that a deal just fell through and asked me if I was still on the market. I would suggest you go in prepared and nurture that relationship.