Financing a 9-unit Apartment Building in Minneapolis

12 Replies

Hello all, this is my first post here at BiggerPockets, so I appreciate any advice and/or criticism you have to offer.

My wife and I have bought and sold 2 properties for profit in the last couple years and we are currently working on our third, which should be the most lucrative of all.  We recently inherited a vacant lot in Minneapolis that is zoned for a 9-unit apartment building with units up to 2500 sq.ft. each.  We are looking for advice on the best way to finance the construction of a new building, as well as what we should expect the overall cost of construction to be.  Currently we think we could build 9 -3BR/2BA units for roughly $1mil.  


-Both work with total annual income of roughly $90k

-Both have near 800 credit scores, zero debt other than our mortgage of $1600 (tied to sale mentioned below)

-Once we sell our current project we should have $130k liquid cash available to put towards down payment. 

-Land is owned free and clear

I have a good lender. PM me and I'll shoot you his info. He's done over $2 million in loans for a good buddy of mine.

I think you underestimate the cost of construction.  You don't explicitly say the sq ft of each unit but say they could be up to 2500 sq ft  each which seems improbable based on my experience.  Without more info on the lot size/unit sq ft, no one would be able to give you advice. 

Drake bank, sunrise banks, Firefly Credit union, bridgewater bank, first american bank all would be good to call. Anchor bank, US Bank and many others may also consider it, but likely to build you will need 25% down of the total build cost. I would expect it to cost about $100-$175/sqft depending on the finishes. If you are building 1200 sqft units you should count on 12,000-15,000 sqft total. Your minimum cost likely would be $1.2M, but I would budget $1.5M+.

Thank you all for your input, I appreciate all of it.  I will start by calling the lenders mentioned and see where that gets me.  I did not specify unit size, as I do not have any plans yet, however we would like to build 3 BR/2BA units as there are many families in that area and we think the extra bedroom and bath would be a great advantage compared to other units renting in the area.  I completely agree that they would be no where near 2500sqft, I just shared that because that is what allowed based on the square footage of the lot and zoning restrictions.

I may very well be underestimating the costs, that's is why I wanted to reach out to this knowledgeable crowd.  The finishes on the building would be very basic as the lot is in a lower income part of town.     

Contact Bridgewater Bank, they've financed a ton of new constructions in South Minneapolis, Shakopee etc

You might want to look into phasing the build, if it's allowed.  Not sure what the layout of the lot is, but it may be possible to build a 5-unit using your cash available (~$500k).  Once you start cash-flowing on that one, refi, and use the cash-out to build a 4-unit building.  

Again, shooting from the hip here because I don't know the restrictions, but it seems like you're a little short on cash without investors, so you may have to get creative, unless you can finance 90% of the build costs.  

@Junaid Khan I agree with the other comments that suggest you will need more down. 25% is typical especially since you do not have experience with this type of deal or construction. You will need to find a design-builder or an architect and get some plans since you really can't do much planning without it. In addition, the loan approval will heavily rely on 2 factors, the final value after construction and the Debt Service Coverage Ratio (DSCR) the lender will not know these without detailed plans and some rental rates research.

The lender will like that you have great credit and your personal income is good, but they are low factors since you will not be able to pay the loan back without income from the building the DSCR will play a major factor.  They may take issue that you appear to have little to no landlord experience.  If you sense this or they mention it you should have a PM in mind.  The lender's concern will be with you being successful and not having experience in a large new construction project or as a LL could be an issue.  If it is you will want a plan ready to make them feel comfortable.


@junaid khan,

As previously noted, the construction costs will likely be significantly higher than $1MM. Typically, we see lower end apartments built for around $165-$175M a key = $1.5MM.

I'd be curious to know the lot size, as you could potentially find some creative ways to increase cashflow from the property with rentable outbuilding space, or split and sell the lot to add more cash down to the deal.

To add some numbers to @Tim Swierczek very salient point about ability to service debt. Assuming $1.5MM project cost, 75% LTV, 4.75% rate, monthly payments are as follows: $7,312.38 over 20 years or $6,458.49 over 25 years, if you're able to find a 25 year am.

But don't lose hope! The solution here IMO, if you are comfortable with your feasibility analysis, projected NOI, and the overall project risk: is to find a partner. You will need someone willing to sign a personal guaranty who has the ability to service the debt, as-is, and best case scenario would be to find a partner who could double as a mentor and show you the LL and construction ropes. I believe this project is a no-go without that. The other advantage to this: you will have a second set of eyes on the deal looking at it, unemotionally, as an investment. If you can't find anyone willing to partner with you on the project, there is likely a reason.

Best of luck!


Hi @Junaid Khan , as for the financing part, I’ve worked with Jeremy @ Flagship bank on some of my previous deals and he’s been great to work with.  I haven’t done any new construction with him, but it is something he’s comfortable with. 

@Tim Swierczek

Tim has several good points -additionally they'll scrutinize your liability/asset ratio based on the loan. If the loan is greater than 3-1 or maybe even 2-1, it might be a no go.

Thank you again for the additional responses.  I have been thinking of potential partners if that is a necessary, however I would prefer to pursue other options before going that route.  I have taken it as a personal challenge to see if my wife and I can make this a reality without the financial backing of an investor.

Some additional info about myself, I have a bachelors in business and Construction Management, and at one point helped my family manage nearly 90 rental units.  I am no longer apart of that business, but do have both construction and rental experience in my background.  Not sure if that makes any "real" difference,  but thought it may be worth adding.   

According to city specs the lot size is 12,315 sqft.

Rental income in the surrounding area is between 1400-1600 for 3 BR homes and duplexes. I was not able to find much for 3BR apartments.  There is always the option of building smaller units, but I thought it would be in our best interest to take advantage of the lot size and build larger units.  

I have spoken to several banks and so far things are looking good.  The project seems viable and the lenders are telling me the numbers make sense and that they would consider lending on the project given we can pass the underwriting process.  

Now I need to come up with some plans so that we can start getting bids from subcontractors. Then we can create the Sworn Construction statement to present to the lenders.  

Do you guys have some suggestions on Architects?? 

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