Investing in Apartment Buildings with Private Money
Multifamily property financing advice and tips.
While there are many lending options available for investors—most individuals who are looking to quickly secure apartment buildings and multifamily properties tend to turn to hard money. A hard money loan is issued by an investor (or investment group) who issues loans secured by real estate. While these loans typically charge higher rates than banks, the advantages are numerous—most importantly speed. A quick close with a hard money loan can entice sellers and set your offer apart from other buyers with slower, more conventional funding. In fact, hard money is perfect in multifamily property situations in which:
- when the investor needs to act quickly
- construction projects
- renovating apartment/multifamily properties
- properties in a remote location
- properties with unclear value
- properties with value based on land alone
In this article, we’ll outline who to surround yourself with and details you need to know about the Pro Forma Operating Statement when embarking on an apartment building investment.
Who’s on your team?
Ask any commercial real estate investor with a great portfolio about their keys to success and they’ll inevitably talk about the people the surround themselves with. From real estate rookies to the seasoned veterans—it’s important to surround yourself with professionals who can help you determine timing, location, and can even negotiate and close deals on your behalf. Here’s a few experts that are good to have in your corner when you begin to embark on a multifamily property real estate deal:
- Accountant: Necessary to figure out what you can afford and analyze the tax and operating budget benefits.
- Lawyer: Necessary to complete the transaction. Can negotiate on your behalf.
- Mortgage broker: Necessary to help organize and determine financing options.
- Commercial broker: Necessary to identify potential properties you can afford.
An overview of the Pro Forma Operating Statement
The single most important document in any commercial loan package is the Pro Forma Operating Statement—also called a projected statement. Essentially, the pro forma provides an estimated financial budget on an income property for the next year. Pro forma statements are used routinely in preparing ‘what if’ scenarios, formulating business plans, estimating cash requirements, or when submitting financing proposals. Pro forma statements are typically included within a commercial loan document package. A common stacking order for a commercial loan package (including pro forma):
- Executive Loan Summary
- Picture Page and Description of Collateral
- Pro Forma Operating Statement
- Rent Roll
- Last 12 Month’s actual Operating Statement
Check back next month when we’ll cover