Loans for $1million...How?

Question

So my brother in-law and I want to buy an apartment complex that’s less than a million dollars and around ten units. I HAVE NO IDEA HOW TO GET A LOAN. Do I need 20% down? Do I have to prove cash flow ability? Can I get away with 5% down. Are there any advantages if the loan is taken about by a HUB? Can I just walk into a wellsfargo and get this kind of loan, or are there specific types of commercial banks y’all would recommend in Texas? Anyway, I’m totally in the dark, so anything and everything is helpful. Thanks

Guifre Mora · Answer

@Bruce HansenAlthough every loan is unique and each lender varies with their requirements, one would find that these items are consistently what make up a comprehensive loan package. For the sake of ease, I have broken this into a few sections to break up different parts of the process. If you have more questions (you will) I’ll be happy to elaborate. Quick QualificationUse these items to quickly find out if you qualify for your desired LTV, LTC, loan amount etc.. This will only give a very broad picture, but will also give a relatively fast positive/negative indication as to the feasibility of the loan in question. * Trailing 12 month, month-by-month operating statements (P&L).* Current rent roll.* Indication that borrower net worth is greater than the loan amount and borrower liquidity is greater than 10% of the loan amount. If otherwise, a discussion would be required along with a PFS (personal financial statement).You would need to reach out to a Multi Family lender/Commercial Bank 20% is possible (depends on lender and loans scenario). Take in consideration loans costs and that a higher downpayment will give you more skin in the game and lenders are more inclined to approve you. Yes rents play a part as this is how the loan is repaid. (Net operating income must be 1.20 of the loan) **All loan scenario are unique and cannot be generalized. Lenders do exemptions on good properties.

Stephanie P. · Answer

@Bruce Hansen25-30% down and at least a 650 middle credit score is necessary, but those loans (with no experience and no income verification) are available all day long.Stephanie

Kevin Owens · Answer

The agencies will technically lend less than $1MM through their SBL under the multifamily programs. However it is rare and they are shying away from this. If it's something you would like to learn more about, please connect with me and we can discuss how the programs work, non-recourse elements, net worth and liquidity, etc...

Tj Hines · Answer

@Bruce HansenDo I need 20% down? (Yes you will need anywhere from 20-30% equity to bring to the table)Do I have to prove cash flow ability? (Yes to get a loan the property must be performing and have at least a 1.25% DSCR to insure their is enough cash flow to cover the operating expenses as well service the debt) Can I get away with 5% down? (No)Are there any advantages if the loan is taken about by a HUB? (Not sure what you're asking here??)Can I just walk into a wells fargo and get this kind of loan, or are there specific types of commercial banks y’all would recommend in Texas? (You need to locate all commercial community savings and loans banks in your market. Do a simple google search then start plugging away. Keep in mind since the loan balance falls under a million, the loan will be full recourse. Someone will have to sign off on that with the experience, liquidity and networth)

Bjorn Ahlblad · Answer

@Bruce Hansen that is a good size you have scoped out; 10 units and less than a million. It suggests a good class of property and decent tenants. You may need to find a property that needs a value add bump to get cash flow. You should talk to several banks/brokers to get a feel for their process and how receptive they are to your plan. Most will require you to have prior experience which you really need anyway. That and/or a PM.Educate yourself thoroughly. There is a lot that can go right or wrong in the buying process and the devil is in the details. Another thing to look for is 'seller finance' which can be a blessing or a curse depending on lots of details. Knowledge is key! All the best!

David K. · Answer

20% - 25% down depending on what the bank requires for a DSCR. Likely is a 25 year amortization with a baloon note of 5-10 years. Banks will often see what a property could make to help qualify you. You have to find commercial lenders. In short, you come up with a good down payment to show the bank you have 'skin in the game', the bank determines if the deal is something you will make money on and pay them.