Difference Between Single Family and Apartment Investing

By
Mortgage and Lending with Commercial Capital Ltd.

Another big difference between investing in residential vs commercial is financing. You might want to do your research on what the property will qualify for so you can determine your actual cash flow. Everyone equates commercial financing to residential and uses residential Fannie and Freddie rates in their calculations.  Commercial financing is a very different animal. 

If your loan amount is below $1MM, at a local bank/credit union, the loan to value is going to typically be around 75% LTV.  The terms for a local bank/credit union is typically a 5-year fix with a 20-year amortization or a 15-year fix due in 15 years.  Local bank/ credit union qualify you and the loan on a global debt service ratio which means the property and you need to debt service the loan.  Also, local banks/credit unions typically will not work with out of state buyers or foreign nationals.

There are other products available outside of local banks and credit unions.  There are also 5-year fix, 7-year fix, 10-year fix  (new is 30-year fix) with a 30-year amortization with a five-year pre-payment penalty and is assumable.  These products typically qualify the property only for the debt service ratio. 

If the loan amount is above $1MM, then you can go Fannie or Freddie or Hedge Fund which depending on the location, occupancy rate, unit break down etc. can be 75% LTV to 80% LTV.  The term investors typically take is a 5-year fix with a 30-year amortization.  But this year we have seen an uptake for the investors taking a longer fixed term like a  7-year fix and a10-year fix with either a 25-year or 30-year amortization.  

FHA - HUD for acquisition is typically a 35-year fix with a 35-year amortization which has an amazing rate but many lenders will not consider financing unless the loan amount is $2MM and most prefer the $6MM+.  

Hope this information is helpful

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Karen Schimpf

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