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Apartment Financing Explained
By: Cameron Brown
So you’re interested in entering the world of property management? Have you
thought about how you’re going to get into this potentially lucrative market?
Let’s face it; unless you’ve just inherited a large sum of money or are
otherwise independently wealthy you’re going to have to borrow. This is where
apartment financing comes in.
Before you go down to the local bank or investment company, it might be a good
idea to ask yourself how long you expect to own the apartment building or
complex. Is this a long-term investment? The answer to this question can
significantly impact the type apartment financing you should get.
If you are planning on owning the property for a couple of years or less, most
experts agree that an adjustable rate mortgage (ARM) will be your best method of
apartment financing. Like the name suggests, an ARM is a loan will an interest
rate that may change with time in accordance with an index. ARMs will usually
offer a better initial interest rate than other loans in order to offset the
risk of future interest rate fluctuations. Moreover, the mortgage holder is also
protected by a maximum interest rate, or ceiling, that may be reset every year.
Individuals planning to stay in the property management business for the long
term may want to look into a fixed rate mortgage. A fixed rate loan will
guarantee the same interest rate over the life of the mortgage.
If interest rates are historically low at the time you receive the loan, this
type of loan will lock you in at the best possible rate. On the other hand, if
interest rates are historically high at the time of the loan, you could be stuck
paying higher interest than you would have with another method of apartment
financing.
Another important question you may want to think about before seeking an
apartment financing source is the estimated cost of the property. This may seem
like a fairly obvious question to consider when looking for a loan, but far too
many first-time investors just take the interest rates they’re given without
question. If the property you’re interested in is selling for over $500,000, a
direct lending source or investment company can give you a better interest rate
than most banks or credit unions. However, if you’re looking at a smaller
apartment building selling for under 500k you may want to see what your local
bank can offer you.
With both banks and other lending institutions eager to provide apartment
financing, new options have emerged in recent years. Generally smaller banks and
other lending sources like direct lenders have a greater degree of flexibility
in their loan-offering lineup. In an effort to attract more borrowers, many of
these lenders are now offering either non-recourse or partial-recourse loans.
The traditional recourse loan offered by most institutions meant that the lender
could have claim on the personal or corporate assets in the event of the default
of the mortgage holder. A non-recourse loan on the other hand means the lender
cannot hold you personally liable if you fail to repay the debt as promised. The
only recourse of the lender is to take the property you’ve pledged as security
for your loan, but he cannot claim any other assets or money from you if you
default.
If you plan to build the apartment building instead of buying it, some lenders
may offer you a partial recourse construction loan. This means that until work
is finished on the project, the borrower is responsible for the entire amount of
the construction loan. However, as soon as the project is ready for occupancy
and the apartment building has some value for the lender to seize, the borrower
is responsible for only 50% or less of the value of the construction loan in the
event of a default.
Whatever method you choose to provide apartment financing, it is important to
make sure you understand all the details. Choose a lender that has both the
experience and desire to sit down with you and take the time to answer your
questions clearly. The right lender will go a long way in helping you find
success in the exciting world of property investing and management.
About the Author:
Cameron Brown is an internet marketer specializing in investment property. For
information on apartment financing, visit http://www.sncloans.com/aptfinlndpg.html |
