Apartment Financing - Low Down Payment Multifamily Loans
For the property loan, the lender company has to do the value evaluation of the property to make sure that the financing is lucrative and there are no immediate or long term threats of liquidity. In case of single family dwellings and residential units, the procedure for evaluation is quite simple, however in the FHA Insured Multifamily Loans, the process to calculate the net value of the property is quite complicated and extensive. While the value of single family home is dependent on the plot value and the construction quality, there are a number of factors to be considered in multifamily units. If you are math shy and are thinking about investing in the multi-unit property, it is time to shed away the shyness for a while and get to a calculator and a paper before heading to the financing company or private lender.
Land and construction value: The land and construction value remains same for almost all types of Apartment Financing¸ calculated through per foot land value and the condition of the building. The location of the building, size of the plot, number of floors, built area, type of construction and other such factors are used to determine the value of the building for financing. This type of calculation is also done for the home financing and most of the property worth is based on this one.
Rental Income of the Building: The next step in the Low Down Payment Multifamily Loans is to calculate the income of the property which is generated through the residential or commercial units. In working on this step, the future income of the building is presumed based on the rents and advances. The annual increase in the rent is also covered. In addition to this, the occupancy rate and the vacancy rate of the apartments is also predicted to make the accurate assessment of income.
Expenditure of the building: When the income is forecasted, the next step is to calculate the expenditures that are related to operational cost, maintenance, utility bills and the property tax. The expenditures include all of the cash flows except for the mortgage money that has to be paid to the lender of Apartment Financing. The depreciation cost, emergency quota or any other expenses related to the operations is part of this calculation.
Net Operating Income: In the multifamily financing or the recourse and Non-Recourse Commercial Loans, this value plays the most important role in decision making. It is the income minus the expenditures of the building and to make a successful deal, the net operating income must be maximized. The higher the NOI, the greater is the profit earned from the financing.
Mortgage-Payment: But, you shouldn’t think that all of the money earned in NOI goes to your pocket. In the last step, the mortgage payment is deducted from the NOI and the resultant amount is the Cash after debt service which is the actual revenue of the building.
Thus, the aim of the financing is to increase the NOI, either by increasing the rent rates or by decreasing the expenditures such as maintenance.