Personal Income for Small MF Cash Out Refi

3 Replies

Hello friends!

My husband and I are working hard to establish passive income from rental properties so we can gain financial freedom!  The plan is to purchase in cash (to hopefully push the price down) then do a cash out refi and repeat the process to continue purchasing properties.

To what extent is income considered for financing small 5+ unit multi-family properties? My husband and I are excited at the prospect of quitting our jobs, but we don't want to accidentally get our investors' money stuck in a property if we are turned down for a cash out refi. From what I've read, the primary factor is to how well the NOI covers the monthly debt payment.

Thanks in advance


Since you are looking to purchase 5+ unit buildings, I would assume you're looking for commercial financing. I'm a commercial real estate analyst for a bank and what you are describing is common and is really just a preference for the investor. Analyzing you or the property would be the same whether you obtained financing before or after. I would not even call it a cash our refi. You simply own a property 100% and want to get a loan. I underwrite larger deals but I know the basics are the same. At my bank, the two largest factors would be DSCR and LTV. DSCR is NOI/Debt Service. Across the board the standard for DSCR is a minimum of 1.20x. LTV would depend on the bank but I haven't seen higher than 75%. If you meet those two metrics, it really just comes down to a bank's preferences and the relationship you build. I can only speak from my short 1.5 years of experience but besides those two metrics, everything else is really negotiable at the commercial level and you can definitely execute your plan. Feel free to message me if you want more information about how I analyze NOI. Sorry if you already know all this stuff!

Yea when you get in to the commercial side of things, your personal finances does not matter as much as the property. The commercial banks care about how well the property performs and if it can sustain itself. Unlike residential when they are mostly concerned about your income to debt ratio. Being that you are new, the banks may want to see 6 months to a year of proof that property is performing as you say and some may even want to wait until you file taxes. It is very important to shop around and see what the criteria is for specific banks and keep a good data binder of them. This will also help you strengthen your knowledge. Good luck. 

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