Apartment Rehab Loans

Do you own apartment property? However, do you need to make repairs/upgrades to increase the value of the property, or simply have to do necessary improvements to get it up to code? If so, then you may need to consider applying for an apartment rehab loan, unless you are fortunate enough to have the necessary funds on hand to cover the expenses.

Loan programs, fees, requirements and etc, will vary depending on city, state, and the borrower’s qualifications. When planning to apply for an apartment rehab loan, as with any other loans, it’s important that you do proper research prior to meeting with a lender. You will want to have an accurate apprasial of your property’s current value, as well as an estimate of how much the proposed repairs/improvements will cost. Any other financial figures, such as an estimate of how much return or profit could be expected, as a result of the rehabilitation being done. For example, if the apartment building you are renting has new paint, appliances or other improvements, it will likely be much more appealing to prospective tentants and thus, less likely to remain vacant.

Typically to be eligible for an apartment rehab loan, the property owner must meet certain critera. Some examples of eligibility including the property owner intending to improve 2 or more units on their property, loans not exceeding 100% of the value of the property, and having all payments (ie: mortgage, property taxes, utility bills) paid up to date. Generally, if you meet these guidelines, you shouldn’t have a problem getting the loan. As a property owner, you should also be agreement with your renters for income restrictions and affordable rent levels. In other words, you can’t increase the rent amount for your tentants to an unreasonable level, just because of the improvements and/or repairs being done.

What type of work is covered under rehab loans? Well this may differ, depending on your lender, but typically such rehabilitation procedures include: major systems repair or replacement (ie: electrical work, plumbing, air conditioning, heating, etc), safety improvements (ie: outlets, broken windows) and exterior improvements (ie: painting, siding, roofing). Other improvements may be covered under the loan as well, so be sure to check with your lender.

How much do apartment rehab loans cost and how is the loan repaid? Once again, these stipulations may differ, from lender to lender, but usually you (the property owner) are expected to pay around 10% of the total improvement cost up front, and you pay the amount of the loan over a period of 5 to 7 years. Usually these payments are made once a year, but some lenders may require you to pay them monthly or bi-monthly. Of course, the lenders have to make money of their own in the deal, so you should be expected to pay simple interest throughout the life of the loan, typically around 4%. There may also be closing costs involved with the loan, but those costs should be disclosed to you prior to any agreements or contracts are signed.

Who can do the improvements or repairs involved? Usually the lender will require you to hire a qualified contractor. For legal and safety purposes, this is almost always the case, because the lender will want to feel secure knowing the work was done by someone qualified and knowledgeable. It’s safe to say that your tentants will expect the same from you. When hiring a contractor, make sure they have a valid contractor’s license for the state your property is in, as well as being insured for general liability and workers compensation. Hiring a contractor who isn’t qualified could result in a costly lawsuit for yourself, so be sure to take precautions. Many property owners have made this mistake and found out the consequences, the hard way.