Financing on more than 5 units under $750,000

6 Replies

I've been trying to research how to get bank financing for smaller multifamily commercial buildings aka small apartment buildings - but it seems that Fannie Mae doesn't do it for under 750,000.

How do you finance these "inbetween" deals, above 4 units but before the million dollars?

Can I try for a jumbo loan like I'd get on a 4 unit when it's actually a 6 unit building?  What other options should I be looking for?


@Wesley Merville

I would consider local banks or credit unions in the area of buy and rehab and ask to speak with VP of commercial dept and ask about a portfolio loan the banks and/or credit unions carry on their books and do not sell to Fannie or Freddie.

Typically a portfolio lender will require arv (after repair value) or ltv of completed project to be around 70% and the DCR to be 1.25>.

If you are purchasing need to find out requirements for down payment.

If you don't understand these terms use the BP calculator and don't forget to input for vacancy and management fee.

The beauty of a portfolio loan is that the property qualifies not you with your dti's etc. and doesn't cap you with 10 units, however they usually require the loan to be in a business entity like an LLC.

Typically a portfolio loan is a 20-25 amortization but that varies from lender to lender so use shorter loan term in calculator.

Ask about loan seasoning, if they require net worth minimum, geographic restrictions, prepays, if they can refi in an LLC so it doesn't show up on personal credit report.

Hope that leads you in right direction.

@Wesley Merville  

Finance In between Units

  • Look for small banks/credit unions/regional banks
  • Speak to SVP at the Bank check out this post
  • For MF you will need to put 20-25% down payment or even 30% at timess
  • Make sure your Debt Service Coverage Ratio is 1.25 or 1.5 (better) - According to Investopedia In personal finance, DSCR is a ratio used by bank loan officers in determining income property loans. This ratio should ideally be over 1. That would mean the property is generating enough income to pay its debt obligations.
  • The loan officer will look at all aspect of your personal income, income generated from the property, rental roll, rental history, Profit and Loss Statements from the seller etc. So it's better to have these handy before you approach the bankers
  • The banker will review the documents
  • The banker provides you with a term sheet that includes
  • Borrower - You/Entity
  • Guarantor - You/Entity
  • Facility - property in question
  • Amount - Typically 75% LTV or appraised value whichever is less
  • Terms - X month term 
  • Rate - Fixed or Prime + Floating
  • Origination Fee - ~1%
  • Closing Costs

In regards to the kind of loan - it depends on the bank and your financing strategy. 

Other Options - Seek Equity partners, get private money or cash partners, speak to a commercial loan  officer

Hope this helps

Originally posted by @Azeez K. :

@Wesley Merville 

Other Options - Seek Equity partners, get private money or cash partners, speak to a commercial loan  officer

Hope this helps

Amazing response, thank you so much!

Quick question - what is the difference between equity partners and cash partners?

Agreed with @Ashley Pimsner , local/ community banks will likely be your best bet in that space.  I would suggest leveraging your property manager/ broker for suggestions to get you started.  

@Wesley Merville , equity partners mean that have ownership in the deal itself.  Cash partners can mean a few things but, likely that they are debt investors (ie., lending you money while you retain ownership in the deal.)

@Wesley Merville  In simple terms

Example Equity - Mr./Ms. A wants to go in the deal with you and fund 50% or X% of the down payment 150,000 ( i.e. 75,000) for 50% equity in the property with you. i.e. when you sell/make a profit/loss Mr./Ms.A will be 50% responsible for the share in the property.

Example Non-Equity - Mr./Ms. B (family friend/parents et al.) wants to go in the deal with you but instead of getting equity in the property Mr./Ms. B will lend you 75,000 for 10% or X%. This person has nothing to do w operations of the property and does not participate in profit -loss. They are simply happy to earn 10% or X% interest in the property as this % is better than what they earn in their savings account. 

Hope that helps and answers u r question. Good Luck hope things are progressing well on the deal. 

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