Friday, March 23, 2007

Fourplex & 5+ unit apartment lending

There has forever been a financial divide between 4plex pricing and apartment buildings that are 5 units and more. This is true even if the buildings are side by side on the same street. A fourplex will sell for $250,000 per unit and the 5 unit building will sell for significantly less - maybe $200,000 or lower. Why? Because the financing on 1-4 units is besed on what the buyer can afford and financing on 5+ units is based on what the building can support. Because of the less stringent financing, fourplexes trade at above market values. Now enter the new hybrid loans from lenders who lend on buildings up to 12 units based on the 1-4 unit criteria. This new financing underwriting will dramatically shift values in the 5-12 unit range over a relative short period. So, what should you do? Perhaps, buy a 5 unit building in a great area and watch it appreciate.

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