"Buy An Apartment Building With No Money Down -
Is It Realistic?"
The brand new apartment building investor/buyer
should be aware of what I consider to be the most important
rule to multifamily investing:
First, the new apartment investor MUST
find a profitable property
This may sound obvious but, in my role
as an apartment building financing specialist, I speak to
dozens of aspiring investors every week who call me or email
me saying that they found a great piece of real estate,
with a super CAP, in an excellent area, that is 95% occupied
and that they would like to find a loan to purchase the
apartment building. Unfortunately, many of these "great
opportunities", upon closer inspection of such documents
as rent rolls and the income and expenses, it becomes clear
that the apartment building does NOT "debt service".
This simply means that the real estate does not produce
enough income on an annual basis to cover all expenses including
the loan payments, taxes, insurance and maintenance costs.
After doing the math, the investor goes back out into the
field, armed with more knowledge. Persistence usually pays
off because there are plenty of profitable properties for
sale, it just takes some time to find them.
After finding a profitable apartment building
THEN the investor should seek financing
Commercial mortgage companies and apartment
building lenders almost always require a buyers contribution
to be 20% of the purchase . The purchase price shouldn't
be confused with what the buyer thinks the property is worth,
or even what the real estate recently appraised for. Banks
are only going to lend money based on the purchase price
of the apartment building. Of course, there are exceptions
to this rule. One exception is when the investor is purchasing
the place to do a construction rehabilitation of the property.
In this case, the loan process is usually more involved
and more documentation is required.
Many of the potential apartment building
buyers that I work with don't have the liquid capital required
for the 20% down payment mandated by the bank. Here are
some of the strategies that DO WORK in the real world. There
are no secrets, despite what many "real estate gurus"
will you, to financing an apartment building investment
with no or little money down.
Many investors are not aware of all the
creative methods that can be used effectively to raise investment
capital. Here are some of the ideas that I have seen be
successful in the real world, with real investors, buying
real apartment buildings with less money down.
1) Incorporate a limited partnership and
raise money from other investors. Forming a limited partnership
for the purpose of raising money for an apartment building
investment is a great solution if the investor does not
currently have the liquid capital needed for the 20% down
payment. A limited partnership should be formed under the
direction of an experienced real estate attorney who understands
the intricacies of this kind of partnership agreement. The
limited partnership normally consists of one general partner
and one or more limited partners. The general partner is
the only member who has the power to make executive decisions
concerning the apartment building investment. The limited
partners invest their money with the expectation of receiving
a return on their investment when the property is sold or
as structured payments from monthly net cash flow. The investor/general
partner should prepare detailed financial statements on
the project to present to potential limited partners in
order to convince them to invest their hard owned money.
A good real estate attorney should be able to help with
this aspect of the partnership as well.
2) Raise capital from friends and family
This may seem like an obvious solution but it is surprising
how many investors neglect to look close to home when trying
to fund a good apartment building investment deal. Unfortunately,
if the investment doesn't work out as intended the investor
not only is risking his investment capital but he is also
risking a close friendship or good relationship with a family
member. Because of this it is generally a good idea to have
a qualified real estate attorney draw up a formal agreement
that clearly spells out the responsibilities of all parties
involved.
3) Obtain owner financing Most owners
of apartment buildings are experienced investors who are
financially adept. They are accustomed to receiving and
utilizing some form of owner financing to structure their
investment projects. Many great properties have been purchased
from sellers who have for some reason or another neglected
the property or are ready for retirement. Sellers who are
motivated to relinquish ownership of their apartment building
will be more willing to offer some form of flexible owner
financing.
If you are new to investing in commercial
apartment buildings I highly recommend you read my e-course,
Buy
Your First Apartment Building E-Course This course not
only gives you all of the in-depth information that you
need to purchase your first apartment building but it also
gives you all of the interactive forms that you will need
to figure out the cash flow and expenses. This course will
actually teach you exactly how to determine if your apartment
building will be a profitable investment. You will also
get access to the names and phone numbers of 25 banks nationwide
who specialize in commercial lending on apartment buildings.
Visit http://www.ApartmentBuildingInvestor.com/ecourse.html
to learn more.
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