How to Build Apartment Buildings With Home Equity

You can finance apartment building construction using the equity in your own home.

Building apartment buildings is an expensive proposition, often requiring extensive financing to complete. To secure that financing means having a cash base of your own to show that you're capable of repaying the loan. Coming up with the necessary money can be difficult, but if you own a home with equity, you have a readily available source of funding. By opening a credit line with your equity, you can begin your building project, using the equity along with further financing to pay for the construction and outfitting of the building. Future revenue from the building can provide you with the funds to repay the financing in turn.

Things You'll Need

• Home appraisal
• Business plan
• Financial information

Instructions

1. Approach your present mortgage holder or find an alternative lender that will provide you with a home equity line of credit. This line of credit is based on the amount of equity you now have in your home, and can be up to that equity amount less a small cushion against changes in the home's value due to market price movements.

2. Have your home appraised by an appraiser agreed to by the lender, to ascertain its current market value.

3. Fill out the necessary paperwork given to you by the lender to use your home equity as collateral against the loan. Sign and date the paperwork, and have your signature notarized to open the credit line.

4. Create a business plan covering the building project. The plan must include estimated building costs and a budget covering the construction. Also include an after-construction plan detailing renting expectations, operating expenses and expected occupancy rates. Consult with a local apartment management firm for information on apartment rentals in your proposed building area.

5. Take your business plan, along with any financial statements you have covering your financial status, to a real estate loan officer who deals with investment property. You can find such an officer at most banks handling real estate loans. Present your building proposal to the loan officer and allow her time to research your conclusions. She will also look into your financial situation, including the new line of credit, to determine if you have the available assets to finance the complete building project.

6. Take out any additional loans or lines of credit suggested by the loan officer to complete financing the building project. Use the additional funding along with your home equity line of credit to build the apartment building in the location of your choice following your business plan provisions.

Tips & Warnings

• Speak to loan officers at multiple institutions to find the best rates for your needed loans.

References

• American Chronicle: How to Obtain an Apartment Building Loan; August 2009
• Mortgage Loan: Compare Home Equity Quotes

Resources

• Federal Trade Commission: Home Equity Credit Lines