So you’re interested in going into business as a property manager? Have you given any thought yet to you’ll enter this potentially profitable market? Reality check-unless you’ve just inherited a large sum of money from a relative or are otherwise independently wealthy you’re going to find someone to borrow from. This is where an apartment loan comes in.
Before you visit local bank or other lending institution, it may be wise to ask yourself how long you plan to own apartment building or complex. Are you investing for long-term? Answering this question will significantly influence type apartment loan you should get.
If you are planning to own property for two years or less, most experts agree that an apartment loan with an adjustable rate mortgage (ARM) will be your best bet. Like name suggests, an ARM is a loan will an interest rate that may change with time in accordance with various factors. ARM apartment loans usually offer a better initial interest rate than other loans to offset risk of future interest rate changes. An interest rate ceiling that may be reset annually also protects mortgage holder. If you plan to stay in property management business for long-term, you may want to look at getting a fixed rate apartment loan. A fixed rate loan guarantees same interest rate over life of mortgage.
Supposing interest rates are historically low at time you secure apartment loan, this type of loan will lock you in at best rate possible. On other hand however, if interest rates are historically high at time of loan, you might be stuck paying interest at a higher rate than you would have with another type of apartment loan.
Another important question to answer before seeking an apartment loan source is approximate cost of property. This may seem like a no-brainer when looking for an apartment loan, but too many first-time investors just take interest rates they’re given without question. If apartment building you’re interested in is selling for over $500,000, a direct lending source or investment company can usually give you a better interest rate than most banks or credit unions. However, if you’re looking at a smaller apartment building selling for less than $500,000, you may want to check interest rates at local bank.