Buying an apartment complex is a long, sometimes complicated, process. It’s important for you to gather as much information as you can before you make the decision to buy. Applying for a mortgage to finance an apartment complex is not at all similar to applying for a home mortgage. Apartment complexes with four or more units are commercial properties, and loans for them have different underwriting rules.
Types of Properties:
Decide if you want to purchase a residential apartment complex of a mixed-use building. A mixed-use building has a combination of office and residential units, but at least 80% of the space has to be residential. The complex has to have a grade of C+ or higher. This means you can’t rent the units daily or weekly, and the units can’t be single-occupancy, as in a rooming house or motel.
Gather information about the building you would like to buy. You may not be able to get a loan if the building will require excessive maintenance, or if the complex has not had 90% occupancy for the three months immediately preceding your loan application.
Talk to local real estate agents. Get their advice about the location you have in mind. Inquire about the possibilities of future zoning changes or any public works projects that may impact an income producing property. If there are plans for a regional airport to be built a few miles away in the next few years, for example, you might find it difficult to rent out your residential units. Don’t assume that everything will remain static; look at the past history of the location and try to imagine any major changes that could be likely to take place in the future.
Have the building inspected by a professional who has experience inspecting commercial buildings. Make sure the inspection covers every aspect; don’t settle for a standard inspection, which may not include trouble spots, such as a wet basement. Pay extra money if you have to for a thorough inspection that goes above and beyond what is required by mortgage lenders. If the inspection reveals serious flaws, don’t make an offer, or reduce your offer amount by the amount it would cost to make the necessary repairs.
Assemble the documents you will need for the loan application. Your real estate agent will be able to assist you in this. Most lenders require the following documents, but your lending institution may require more:
The ensuing is a list of supporting documents that are required to process and underwrite (due diligence) your commercial loan request. Additional documents will be required.
Financial Supporting Documents:
The last three (3) years corporate tax returns
The last three (3) years business tax returns
Name and address of corporate bank
Business Profit & Loss 3 Years, For Seller or Buyer
Most recent copy of business bank statement
Personal financial statement for all guarantors
Use of Proceeds In An Excel Format For Cash Out Refinance
Property Supporting Documents:
Schedule of tenants leases
Copies of Tenant Leases
Schedule of Units with Square Foot Per Unit
Schedule of improvements to be made with cost breakdown to subject property
Exterior Photos of Subject Property Photos of Parking Lot, Street view
Interior Photos of Subject Property
Most Recent Appraisal
Copy of the First Page of the Insurance Binder for Refinance
List of All Litigation Past and Present
Guarantor Supporting Documents:
4506 T executed
Tri merge credit report
Government issued photo ID copy – front and back
Personal Financial Statement
Articles of Incorporation