Apartment Buildings
Multi-family is the deepest, most competitive lending market in commercial real estate — which works in a borrower's favour.
There are many kinds of apartment building to buy and just as many ways to finance the purchase. Townhouses, luxury apartments, garden-style complexes, multi-family houses divided into three or more units — the mechanics of financing them are broadly the same, and the differences are in the details that determine your terms.
Old building or new?
This is the first decision, and it drives everything downstream. Financing an existing structure is generally more straightforward than financing new construction: there is an operating history to underwrite, income the lender can verify, and a defined closing date. If you are buying a stabilised building with a rent roll, you are in the deepest part of the lending market.
New construction is a different product entirely — see development and construction. It is financed against a budget and a projection rather than performance, and the underwriting reflects that.
You cannot sensibly compare financing options until you have made this choice, so make it first.
What you are actually choosing between
Luxury apartments cost more to acquire and finance, and return more. Amenities and finish levels support higher rents, which supports a higher valuation — but they also carry higher operating costs and more sensitivity to a downturn, since premium tenants have somewhere cheaper to move to.
Townhouse complexes remain consistently popular. Multi-storey, basic or high-end, and usually well regarded by lenders because tenant turnover tends to be lower than in conventional apartments.
Traditional and single-storey apartments are the volume of the market, with the broadest lender participation and consequently the most competitive terms.
Multi-family houses containing three or more units are where a great many investors start. Small enough to manage personally, large enough to count as commercial property, and a genuine entry point for first-time buyers.
What a lender looks at
Net operating income above almost anything else. Gross rents less operating expenses gives the NOI, and the NOI drives both the valuation and the debt service coverage ratio — see our FAQ for how those calculations work.
Beyond that: current occupancy and how it has trended, the quality of the rent roll and whether leases are at market, deferred maintenance visible in the last inspection, and the submarket. Lenders take a view on local supply, and a market absorbing a large amount of new construction gets underwritten more conservatively than one that is not.
Where to start
Browse listings for commercial apartment buildings and work out what you are looking for, but bring us in before you go under contract rather than after. Knowing what will finance — and at what terms — shapes which buildings are genuinely worth pursuing, and there is no cost to finding out.
Financing a multi-family property?
Send the rent roll and the operating statements and we will tell you what terms are realistic.