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Assumable Loans in Multifamily Deals

Sep 15, 2008
Though you're unlikely to find assumable loans in the single-family real estate market, they are quite common on commercial loans. Apartment buildings are often at least partially funded through assumable loans. Understand the basics of assumable loans before you finance your first multifamily real estate deal.

Assumable loans are nearly unheard of in the single-family housing market today. Fortunately, though, most commercial loans are assumable on apartment buildings. Knowing about assumable loans and their benefit to you can help you to finance a lucrative real estate deal.

You'll definitely want to look for assumable loans, but you need to go into these loans with your eyes wide open. Her's what you need to know:

Look at the details
If you assume a commercial loan on an apartment building, the lender may charge you a point, but you may find that the point is worth the assumable loan. The methods used to go around non-assumable loans for houses don't apply for apartment building loans. Read the fine print.

Know the difference between 'assumable' and 'subject to'
When you assume a loan you do it with the bank's consent. A 'subject to' is assuming a loan without the bank's consent and taking over the mortgage payments. There may be a 'due on sale' clause that gives the bank the right to call the note due if the title on the property is transferred. With an assumption, the bank can ask for one point and make you or your entity the lender.

Understand that you can buy the asset without assuming the seller's liabilities
Real estate entrepreneurs may wonder if they will take on additional liabilities when they assume a loan. For instance, if you buy a property that is owned by an entity, will you be buying the asset or the stock in the entity that owns the apartment building? You want to buy the asset because you don't know what liabilities are associated with the entity. You can buy the asset by assuming the loan.

Pay close attention to the interest rate
The interest rate can mean everything in an assumable loan. No matter what the going interest rate is today, you can find some stellar interest rates in assumable loans, even with the 1-point transfer fee. Assumable loans are especially appealing at times when interest rates are high.

Don't forget about assumable loans when working on financing for your multifamily real estate deals. It's an important tool in your entrepreneurial toolbox.
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