How to Borrow Against Home Equity to Build Apartment Buildings
A bank is usually willing to lend up to 80 percent of the value or cost, whichever is lower, of an apartment building. To build an apartment building using no cash of your own, you must find a way to come up with the other 20 percent. Borrowing against your home equity is one way to make it happen.
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Things You'll Need
- Home equity
- Current home appraisal
- Investment real estate plan
- Contact information for a mortgage loan officer
Instructions
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Arranging Financing
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1
Go to your local bank branch and meet with a mortgage loan officer. Tell them you would like to take out a home equity line of credit or a second mortgage on your house.
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2
Arrange for the appraiser who the bank hired to determine the current market value of your home to do an inspection. The appraiser will do a thorough inspection of your home, compare your home to recent comparable sales in your neighborhood, and report the results back to the loan officer.
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3
Sign the paperwork the loan officer prepares for you. Depending on the bank's current preferences, you will either get a home equity line of credit or a second mortgage.
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4
Set up a meeting with a real estate investment loan officer either at the same bank or at another to talk about financing for your apartment building project. You need to take a solid business plan that estimates total construction costs, normalized net operating income, and the expected amount of time to lease up the building. You will also need to take local real estate market research that shows average occupancy rates as well as comparable rental rates.
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5
Wait for the loan officer to do his own analysis of the project. He will look at the information you provided and compare it with in-house research and market trends. He will also examine how much money and experience you bring to the project. If the numbers and resulting ratios are acceptable to him, he will approve the loan. You will then be able to use the money from your home equity loan plus the investment real estate loan to build your apartment building.
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Tips & Warnings
Contact several banks for quotes on loan pricing and structure and let them know you are soliciting several offers.
Not every bank will be willing to provide you with financing to build an apartment building due to their need to reduce exposure to the residential real estate market.
