"Pre-approval" on multi-family homes

5 Replies


I am looking to get into multifamily real estate (starting with small 2-10 unit properties) in southwest Washington and wondering about the whole offer and purchasing process so I can better plan out my path. I talked to one bank and was given the understanding that the process isn't like home buying where you get pre-approved for a certain loan amount and then go shopping. They made it seem as though you make an offer with stipulations (ie, subject to bank approval, inspection, etc) and then go through the loan approval process based on loan to value ratio, cash flow, etc). 

Is this the correct process? This seems quite contrary to home buying where proof of financing is usually required/expected when an offer is made. 

Any help clarifying the general process to securing commercial real estate financing and purchasing small multi-families would be appreciated. 


If you get conventional up to a 4 unit then the process is generally just like any primary home. Once you get to 5+ in the commercial realm then it is more based on numbers and possibilities from the property. Commercial property values are more based on potential and not just the value as it sits. If you have two almost identical buildings, but one makes 50% more money then the bank will prefer that one for financing.

Thanks, Dan! I was waiting to see if any more responses came through before posting again. I appreciate your input. 

I talked to Wells Fargo. They have a commercial real estate loan with a 1% origination fee (caps at $5000). That seems to be the only down payment "required." However, as expected, they only will loan up to 80% of value. 

Do you think it'd be possible to find a property that I can buy for 80% of the appraised value? My feeling is the appraisal is based off of projections to some extent. I'm hoping I can negotiate a price based on actuals. 

@Todd Cichosz I lend in the commercial real estate space. With regards to lending it is typically limited to a maximum of 75% LTV. If it's a commercial real estate loan that you are seeking in addition to the origination fee you will pay for the appraisal, a Phase I environmental and perhaps a property condition report. You will also be expected to pay for the cost of the bank attorney as well as yours. Don't want to dissuade you but you should know what to expect. Best of luck.


Thanks, Michael, I welcome all the input I can get! I'll take realism over optimism any day. 

My goal is to purchase a 5-50 unit property by the end of 2016 so still early in the process. I definitely need to save up some capital- the more info I get the better idea I have of how much I need. Thanks, again!

This is a good topic.  I am going to call my bank tomorrow to find out about the commercial side.

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