How to Prepare for Your Hard Money Apartment Building Loan

Learn the steps to take and the pitfalls to avoid when financing a multifamily property.

Hard money is a source of financing for multifamily properties and while there are many lending choices for investors out there, nothing comes close to hard money when it comes to the ability to fund the loan quickly. Speed is a huge advantage in the commercial development market. The real estate investor who secures financing within a week—as opposed to traditional lending that can take 45 days or longer—has an incredible advantage and can get the seller’s attention with an offer above the conventional competition. Hard money loans are perfect for . . .

  • when the investor needs to act quickly
  • construction projects
  • renovating apartment/multifamily properties
  • when the borrower has inconsistent cash flow and needs an asset based lender

What to Expect

When you start talking to a private lender about a hard money loan for a multifamily property, a detailed, well-documented loan package is vital to making an underwriting decision. A third-party appraisal will be required. Typically, lenders will also run a credit report, may require two years of tax returns, as well as request financial statements (bank, investments, proof of credit/assets/liabilities). It should be noted that the documents required will be unique to the type of loan and each borrower’s personal financial situation. Some common documents are:

  • Borrower tax returns
  • Financial statements
  • Information on owned properties
  • Contingent liabilities of the borrower
  • Construction loan sources and uses
  • Cost estimates
  • Full project plans
  • Engineering specifications
  • and any other documents that can support the loan request.

A helpful hard money lender will assist you with the loan application as well as the Statement of Information (SI), a document that helps the title company evaluate your application.

Pro Forma Explained

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

Apartment Pro Forma: What to include

The next time you need to prepare an apartment pro forma here’s a list of items to include—and why.

Gross Scheduled Rents

While it’s important to make the GSRs appear as large as possible because many lenders determine the maximum size of your loan by this number. Naturally, they’ll snip off 5 percent for vacancy and 35 percent for expenses, among other things.

Parking / Laundry / Vending Income

When all added together, this extra income can be substantial and many lenders will allow you to include such income in your Gross Potential Income.

Reserve for Vacancy and Collection Loss

All multifamily building owners suffer from collection loss and there isn’t a lender out there  that will accept a Reserve for Vacancy and Collection Loss of less than 5 percent. If you try and get below that number—you risk the lender disregarding your entire pro forma and creating a new one on their own, and your loan amount being drastically reduced.

Real Estate Taxes

Use the current tax bill from the preliminary title commitment—or if unavailable—user last year’s actual taxes. Since pro formas are prepared for both the lender and potential buyers, the latter want to see at what cap rate they are buying the building, and the current tax bill can be misleading since states will initially value and tax a building based on its purchase price (often undervalued by the tax assessor). Regardless, as a potential borrower you will want to qualify for as much leverage as possible—so stick to the current tax bill.

Repairs and Maintenance

From painting and cleaning to pool and unit maintenance—just use the figures from last year to gain an accurate estimate.

Property Management

This should account for 5 percent of the Effective Gross Income—even if you insist you’re doing the management yourself.


It’s recommended to set aside 3-5 percent of the Effective Gross Income as the replace reserve for any multifamily property.


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