by Theresa Bradley-Banta
For years, borrowers looking to finance multifamily properties have been led to believe
- their credit is not relevant
- lenders look exclusively at the cash flow of a property
- they are golden if the property income covers expenses (including debt service)
- financing requirements are met as long as the numbers work
That’s not true any more. When you approach a lender or commercial mortgage broker for financing, your lender will want to know about you. They’ll want to know that you are able to finance the property; guarantee loan repayment with minimal risk; and successfully operate the property.
I know borrowers who fight the multifamily loan application process at every step—kicking and screaming all the way to the closing table.
If they actually make it to the closing table.
But why not have a rewarding experience?
The multifamily loan application process does not have to seem like a trip to the dentist. If you prepare in advance of the loan application date you will have time and energy to address other issues that might come up during the underwriting process. And you’ll be ready to concentrate on your business plan of multifamily ownership.
When you arrive at your commercial mortgage broker or lender’s doorstep with the documents and information below your lender will love you and your chances of funding your deal are greatly increased.
Your Track Record of Success (aka Statement of Experience)
Real Estate Investor Résumé
Your lender is likely to ask for a copy of your real estate investor résumé. Your résumé is a typewritten document that summarizes your real estate investing skills and experience.
If you do not have a track record of successful multifamily real estate investments, show a lender that you have transferable skills.
Transferable business skills will include
- employee/team management
- sales, leasing and marketing
- budget forecasting and
- property maintenance and business ownership
If you have skills from the single-family side of real estate investing such as landlording, be sure to include those skills.
Real Estate Investing Team
Also let your lender know that you have team members with multifamily real estate investing and property operations experience who are ready to step in the day you close.
In your résumé, list the names and contact information for all the skilled professionals who will manage and run your property. These professionals can include: leasing agents; renovation specialists; trade contractors; and an experienced commercial property maintenance team.
Some lenders may require that you hire a third-party management company for your first year of ownership.
My book Invest In Apartment Buildings: Profit Without The Pitfalls has a sample Real Estate Investor Resume. You can also get a free copy here.
Personal Financial Statements and Tax Returns
Don’t be surprised when your commercial mortgage broker or lender asks for your tax returns for the past two years. Scan these documents and be ready to deliver them as an electronic file.
Your lender will also want to see a Personal Financial Statement. This statement is an itemized list of your assets and liabilities. You don’t need a fancy financial statement—a word document or excel spreadsheet will work.
Your list of assets will include
- securities and stocks
- notes and contracts receivable
- life insurance (cash surrender value)
- personal property
- retirement funds
- real estate owned (market value)
- other assets such oil and gas and businesses owned
Liabilities will include
- current debt (credit cards and other accounts)
- notes payable
- taxes payable
- real estate mortgages or debt and
- other liabilities such as automobiles.
Deduct your liabilities from your assets to arrive at your current net worth.
A thorough Personal Financial Statement will also include an attachment listing the specifics of each individual liability and asset. For example, the two lists below itemize the assets and liabilities for a single piece of real estate owned.
Real estate owned (asset)
- property description/location
- market value
- amount owed and
- original purchase price and date
Real estate mortgage or debt (liability)
- name of creditor
- amount owing
- original amount paid
- monthly payment
- mortgage interest rate and
- items securing the property
Historical Operating Data also known as Annual Property Operating Data (APOD) or Trailing Financials, lists all property income and operating expenses. This is information you probably already have from your early analysis of the property. You must ask the seller for copies of all trailing financials for the past two years—more is better.
You’ll also want to ask for copies of the property Rent Roll for a trailing period of at least one year—more is better. The loan underwriter will need a notarized copy of the current month’s Rent Roll. For more information on a multifamily Rent Roll read How to Manage Your Multifamily Property Manager.
It’s also a good idea to offer a list of any capital improvements made to the property in the past several years.
Stabilized Pro Forma
Your lender will want to know how you plan to operate the property especially if you’re buying a building with low occupancy, collection problems, high expenses and low income. It’s a great strategy to buy a property that you can add value to but—and this is a big but—you need to show the lender that you know how to make immediate improvements to the property operations.
An Annual Operating Budget is the perfect way to prove your plans for maximizing profitability. For more information read Creating an Annual Operating Budget for Your Multifamily Property. This document will satisfy underwriting requirements.
This level of preparation for the multifamily loan application process will set you up for success.
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