Apartment building loan with limited credit

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im new at this
Posted by: julian Jun 17 2004, 12:46 PM
well im 19 years old and i need some real estate like an apartment building and my credit history isnt long but i messed up with my first credit card. I dont know were to start but i have the vision please help me i dont know anything
Posted by: The Fox Jun 17 2004, 04:59 PM
Your lack of credit history is a problem but the two major components of financing your apartment building are:

– Collateral. Loans for commercial real estate typically need 75% LTV or better. Anything less than that will most likely be a deal killer – with your credit history and lack of experience.

– Cash flow. It will be essential that your property cash flow, meaning that it generate enough cash to meet your mortgage payments, after figuring in maintanence and all your other expenses.

That said, when I hear “i need some real estate like an apartment building” and “i messed up with my first credit card” I wonder what you are expecting to be able to do. This vision of yours may very well be possible, but you are probably not going to get rich quickly doing it.

My suggestion? Keep your vision, but take a realistic approach.

(1) Get into rental RE by buying an owner-occupied duplex (you live in half, rent the other half).
– You’ll learn about RE and get to qualify for MUCH better/abundant financing than a commercial loan.

(2) If you learn from this experience and are doing well, get another duplex under similar terms, vacating your 1st duplex after the occupancy clause expires and make the new duplex your primary residence. At this point you’ll be renting 3 units, with 2 residential mortgages.

(3) After all of this, you may be in a position to 1031 your existing properties into a 4- or 6- or 8-plex — probably with a real commercial mortgage at this point.

That my 3-minute primer for you. Let us know what you have in mind, and we can give you a better direction.

Oh, that’s about it for RE investing knowledge on my part, but I know you’ll have a hard time getting a commercial loan for a true “apartment building” at this point.

Good luck.
Posted by: loanuniverse Jun 17 2004, 10:16 PM

As mentioned by Fox, the lender looks at cash-flow, collateral and loan-to-value primarily when assessing these types of requests. Credit is important, but it would have to be really bad to be a deal breaker. In your place, I would order my credit report and find out exactly how bad my credit is.

You failed to mention how much money you have to invest. Most mainstream lenders would like to see anywhere from 20% to 25% in the form of equity from you. The most common way to get around this lack of equity is through the use of seller financing. I see a problem with a 19 year old convincing a seller that he is a good risk when trying to get financing.

Another way to approach this would be to get some of your friends involved into an LLC or S-Corp and get the down payment by pooling your funds. You could even set it up that in addition to everyone sharing equally in the return that you could get a management fee for dealing with the property. This way you could get compensated for your work and your friends would be “truly” passive investors.

Good luck
Author: Commercial Loan Underwriter