Financing an Apartment Building


I’m a new investor looking to invest in apartment buildings. I’m reading as much as I can … but the more I read, it seems I find out the less I know… anyway…

I am trying to learn more about how to structure a deal.

For example, I came across this offering.

12 unit (1 Br, 1 Ba) 100% rented at $375/mo.

Gross Income $54K
NOI $31K
Pre-Tax Cash Flow $9K

The owner proposed financing:

Down payment: $58K
Loan amount: $232K
Interest Rate: 6.00%
Amortized Over: 25
Due In: 7

I have good credit rating (780) and about $500K in assets ($250K home equity and $250 retirement accounts).

The problem is that I have little cash-on-hand. What is the best way to way to secure the downpayment - HELOC? [P.S. If I go into my bank and ask for a $70K HELOC will they freak out if I mention investing in real estate??]

The building is not in the best section of town, but nevertheless there is a demand for this type of rental. I plan on using a management company and have factored their 10% into the expenses)

The seller has owned the building since 1978 and there is no mortage on it, so there is some room for creative negotiation … except I don’t know enough to be creative. I really want to minimize the amount of downpayment I have to put down because it looks like there will be small positive cash flow even if financed 100% (which I know is not the norm for apartments).

Anyway, I’d love to hear some advice from experienced investors.


Howdy Kayaker:

Here is one idea you may not have thought of:

Buy the property with one of your IRA or Keogh Plans. I am just learning this myself. One thing is you can not personally guarantee the loan. You could almost pay cash with the amount you have. How about 50% down and 50% loan. This should be a no brainer for a bank and should not require you to sign personally. I know there has to be a mortgage guru out there that can help you with this.

You may even get the seller to finance.



One thing that you need to consider is the fact that after you pay for your HELOC, you will only have a cash flow of about 3k per year. If your vacancy rate jumps for some reason, you are going to have a negative cash flow. You need to look at whether the rents are below market rate (ie can you increase rents without losing tenants). Also, this price will not be able to support a manager of any type and not much pay for you to manage it yourself. IMHO, at this price, you will be working for the previous owner (paying him to buy his property) and not for yourself.
I have looked at some apartment complexes (but not bought one as of yet), but I tend to look at properties that are less than 100 percent occupied. Typically, they are easier to improve the bottom line. If a property is 100 percent occupied, the only way to increase profit is to increase rents. When you increase rents, you take a chance of losing tenants. If you can increase rents without going above average for the area, you may be able to keep your tenants and increase your profit too. Such is the quandry of a landlord.



Thanks for the thoughtful replies. Looks like I will need to put some money down to improve the cash flow. I’ve heard 35% is typical for what commercial lenders expect, although seller financing could be more favorable.

I’ll look at the use of the IRA for the down payment. I have some reading materials on this and found several websites to start learning – a promo piece here (

Thanks again,


There are also a few articles available here that describe using retirement funds to invest in real estate. Click “Real Estate Articles” on the left side menu.

I have a better solution. If the revenue can service the debt, you can get a 90% LTV (80/10) to acquire that property, and you can use the extra cash for closing

I would continue the negotiations with the seller. Offer a higher interest rate if he’ll carry a greater sum! See if you can get him to carry 95% and make 15% due in 5yrs at 10-12% and keep the 80% at 6% under exiting terms.

The beauty of owner finacing is they avoid tax implecations, get good interest and know the collateral very well! Keep working with the owner if he’s willing to carry.

Good luck,