Commercial loan for multifamily?

15 Replies

Hello!! We are going to meet with someone today about purchasing his 8 plex. It was a sudden thing, and I haven't had a lot of time to do my research. This will be our first multifamily purchase, and I'm not certain how to go about financing or how to determine a reasonable asking price. Is a commercial loan the way to go in this circumstance? Any advice would be much appreciated! Thank you!


@Shannon Cannon If it's an 8-unit all on one parcel I think you pretty much *have* to go for a commercial loan.  Your best bet is to talk to community/local/regional banks in your area.  They usually carry the note, have wiggle room in their requirements, etc.  Generally, I'd plan for 25% down, 5-7 year fixed rate with a balloon payment at the end of it, either a 20-25 year amortization, and they might want it to be a full recourse loan.  You'll probably also be paying a little higher interest rate than a conventional loan.  The real cash-flow killer can be if they do require you to use a 20 year amortization table.  Run the numbers yourself, it really can change things.  The good part is that you pay down the mortgage quicker (assuming that's your goal) but there might be less cushion in the cash-flow for unexpected expenses along the way.  But they key message here is that your mileage pay vary when it comes to terms.  Which is why you need to start calling those banks...

@Shannon Cannon

Yes. Anything 5 units or higher is done with a commercial loan.

There might be a combination of creative solutions, but you need to see the place first and get the rent and expense information first.

Outside of owner financing, you will need to go with a commercial loan for anything over 4 units. You'll need to have at least 20% down on the purchase price. Lately we've been able to get 5/1 ARMs on 20 year fully amortizing commercial loans for these types of properties in the mid 5% range. 

As far as determining a reasonable asking price, you will need to see the NOI on the property, and determine the CAP rate that is the going rate for your area, then factor in any capital expenditures that you anticipate encountering such as replacing the roofing, HVAC, etc...

After that, you'll want to determine what the cashflow will be and make sure you'll be able to service the debt, set aside money for vacancy, repair, and property management, and however much you'd like to net in cashflow. Once you've determined that, you should be able to sort out a MAO for the property.

Good luck

20 years ago we got a 25% down 15 year commercial mortgage from a local bank, but at +2 pts it was 9.75%!! Paid that down fast.

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Thank you all so much for the quick info! Getting ready to go meet with the seller, so I appreciate your feedback. I talked to a local banker, and sounds similar to what you guys said. Will update you if things work out. Prayers welcome, thank you!! 😊

@shannon, good luck. We'll be waiting for an update. It is always good to hear in this business!

@Shannon Cannon


Depending on your tax situation, be prepared to go for a no income verification product.  They can be very useful in your situation and I've seen 30 year amortizations that offset the cash flow argument.  Rates are generally higher than conventional, but like I've written numerous times, if the numbers work and you don't qualify for a full doc deal or don't have time for the lender to process it, take the money and close.

Best of luck


If your loan amount will be over $1MM and the property has an occupancy over 90% then you will qualify for a Freddie Mac loan with 20% down. Depending on the market the rates would be upper 4's to low 5's. 30-year amortization without personal recourse. Debt service coverage will depend on market. Closing could take place in 30 to 45 days depending.

If you can, avoid hard-money loans with high interest rates and short terms.

Thanks everyone for your responses!! So we've been negotiating back and forth with the seller, and because his price is on the higher end of what we wanted to spend, I need some advice.  I know a good bit about single family residence and flipping, but this will be our first rental and multifamily investment-also first commercial loan--so I am feeling a bit apprehensive.  I think the numbers work, and I will lay it out for you all in a minute, so you can give me some wisdom, but let me tell you the crazy story behind this!!

So we live in the Baton Rouge area, that flooded one year ago.  I've been driving by these apartments that flooded waiting to see if they would be renovated.  So a couple a months ago, I decided to start trying to find the owner's name to see if he'd be interested in selling.  I found a couple phone numbers, but they didn't lead to anything.  So yesterday, I was at our city permit office waiting on a permit for another house we just purchased.  I decided while I was there, I would go to the courthouse and try to find out who owned the apartments.  I was literally typing in the address of the apartments to do a search, when I heard someone saying the address out loud!! I thought, surely I must have heard him wrong! As I listened to him continue to talk, he was talking about his apartments that he needed a permit to begin renovations!! I couldn't believe it!! I went up to him and said, "You're not going to believe this, but I have your address written down right here to go find out who you are!!!" I asked him if he was interested in selling, and he said jokingly, "got your checkbook!" He's an older gentleman who built them originally and doesn't need to sell.  I think he probably would rather not renovate, since it looks like he will do the work himself, most likely.  But he's not looking to give them away either.  Long story little shorter, we met yesterday afternoon to look at property. Ive spent most of my night last night and day today on phone with bankers, insurance agents, contractors-trying to get a good idea on price.  Can't help but feel like this was divine intervention, and don't want to pass up an opportunity from the hand of God because of my apprehension!!! So I will show you what I've come up with so far.  Any advice is most welcome!! Thank you so much!!!

Will have to post separately, cause I've run out of room with my long short story! Sorry!

Continued from previous post...

8 units, 1000 sq ft each (completely gutted to ceiling.  electrical, plumbing, hvac intact, but ac units need replaced)

He wanted 45$ sqft, will take 40$ sq ft or $320,000 (we wanted 35$ sq ft. -280,000 but felt ok to do $300,000)

Local banker said they usually do 5/15 but can do 20 year, assuming that would be 5/20. About 5ish %, so we did 5.5 on high end to run the numbers. We're thinking we could do renovations for $150-200,000. Banker said they might can do the loan based on the ARV, so depending on what that might be, we might not have to put very much cash down. Would try very hard to keep the total at or below $500,000. So based on that number, this is what I've come up with so far...

$3440 note at 5/20 5.5%  $500,000

Insurance (agent gave quote with foremost)  $6000 annually

flood insurance waiting on quote but thinking $2000 high end annually?

Property taxes $5000 annually apx

Maintenance--$1000? annually apx (thinking we won't need much repairs on new renovations?)

TOTAL expenses==$55,280

He said he rented his for $850 before the flood.  I'm thinking $800 might be a good guaranteed number, but could potentially get up to $900 for newly renovated.  So going to do the math for both 800 and 850. 

Income @ $800==$76,800- 2% vacancy (is that an accurate %?)==$75,264

Income @ $850==$81,600-2% vacancy==$79,968

So @ $800 cash flow would be $19,984 annually and @ $850 would be $24,688

I know that looks good on paper, but I feel like I must be missing something.  We will be subbing out the renovations, and I haven't done a complete breakdown yet, but did a rough estimate.  

I have no idea of appraised value.  The only multifamilies for sale at the moment are closer to LSU, and I'm assuming the prices are higher there.  But a 4 plex, good condition, looks like it might run about 500,000 near LSU.  The area of this 8 plex is a very decent area, I'd say B+, maybe B-.  If I had to guess an appraised value completely renovated, I'd say 700,000 easily maybe? Average price of property is 100$ a sq ft pretty regular around here.  Rental rates are 1$ sq ft most places, esp SF homes.

Sorry you've spent your evening reading my novel!!  I just wanted to include as much info as possible so you can help me see what I may be missing and if this seems like a good investment deal!! Thanks again!!


Is the property in flood zone X?

It's in a flood zone, but not sure which one. I'm willing to bet AE. Owner didn't have flood insurance cause he owned them free and clear. After a little more talking with owner, parking lot apparently holds water too and needs to be raised. He's still not wanting to come down on the price, so we are probably going to wait and see if he'Il reconsider his offer. Thanks everyone for all of the helpful information!! It's so great to have people to go to for help!! 

Thanks again!


Hi, Jonathan, No never purchased mainly because the flood insurance would have been too costly for this property. But I did speak with a lender who would do the rehab loan, and another lender who would do the final loan-commercial. But the numbers just didn’t work for us to move forward with it. 😏

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