How to Get Financing For Apartment and Multifamily Buildings

 In Multi-Family, Lending

Acquiring an apartment building can be a lucrative investment with a proper leasing and management strategy, but first thing’s first. What about financing? The way commercial real estate lenders underwrite multifamily properties is vastly different than their residential counterparts and require a much more intensive preparation process.  If you’re unsure of how to get started, be sure to contact us or speak with a representative to begin building a strong loan submission package to present to our consortium of apartment and multifamily lenders.

Commercial vs Residential

We’re not talking about duplexes, triplexes, or even quadruplexes, since they’re not technically considered commercial investments. To consider yourself a commercial investor, the apartment complex you’re looking to acquire needs to be at least five units or more.

Besides needing to be five or more units, the subject property needs to carry at least a C+ grading to be considered for commercial financing. That means there can’t be large amounts of deferred maintenance or obsolescence. It also can’t be rented out daily or weekly and must be at least 85% occupied for at least the last 90 days before you apply for your loan application. Mixed-use properties, or buildings that have retail on the ground floor and apartment units above, are fine if at least 80% of the space is residential.

Here’s How to Get Funding for an Apartment or Multifamily Acquisition:

Most lenders will require a 20% down payment, although these terms may differ. It’s imperative you find a lender that is familiar with and likes the area you’re building (if it’s a construction deal), or if you’re buying or refinancing an existing building.

When it comes to the actual loan, there are two common types:

Recourse loans: this kind of loan makes the borrower personally liable if payments are not made. The lender is legally permitted to go after the borrower and their personal assets in the case of default and if the underlying property’s value is not enough to cover the debt.

For example, say an investor is able to borrow $5,800,000 to purchase a 12-unit apartment building in Los Angeles. Hard times hit the investor and his property management firm poorly executes their leasing strategy, so the property goes into default because loan payments were not made. Meanwhile, the local commercial real estate market declines and now the building is only worth $5,300,000. If this building was purchased with a recourse loan, the investor would be personally liable and $500,000 worth of his personal assets could be targeted by the lender.

Non-recourse loans: lenders will still collateralize your loan against the subject property, but the borrower is not personally liable and the lender cannot target personal assets in the event of a default. This holds true even if the value of the collateral does not cover the remaining balance of the defaulted loan. Sometimes, if the borrower has a portfolio of other properties, they can cross-collateralize them to the loan they’re seeking. This type of loan is also known as a limited liability loan.

What Do I Need to Prepare?

As we outline here, you’ll need detailed documentation. Here’s a breakdown:

1. Current Rent Roll including:
• Breakdown of Units with leases / stabilized
• Apartment total units with Bedroom/Bath count

2. Complete Income/Expense Statement on the property including:
• Annual property taxes
• Insurance
• Water/Sewer
• Gas, Electricity
• Maintenance/Repairs & Management

3. Summary of all Commercial Leases (retail or otherwise) if any, showing escalations & expirations.

4. Physical description, including square footage.

5. If an acquisition, we will need a fully executed Contract of Sale.

6. If a Refinance, the price originally paid for the property, date of purchase and summary of current financing.

7. Photos of the interior and exterior are preferred.

8. Site Plan or Property Survey, if available.

9. If this is a refinance, a Summary of Current Financing, including:
• Current lender
• Current principal balance
• Interest rate and type of loan
• Monthly mortgage payment
• Maturity date
• Prepayment penalty information

In addition to the items above, it’s always safe to assume that you’ll also be asked to provide these items as well:
• Current Business Financial Statement
• Last two years of filed Personal Tax Returns
• Last two years of filed Business Tax Returns
• Current Personal Financial Statement


If the lender likes the area the apartment building is in, your personal and business financials check out, and the property’s cash flow figures satisfies the lender’s requirements, you’ll receive a commitment letter (also known as a letter of intent) that represent the lender’s readiness to move forward and outline your loan’s general terms. You’ll also need to satisfy closing conditions that range anywhere from building and environmental inspections to obtaining title and hazard insurance. The lender will also issue an appraiser to come out and verify the value of the property by collecting comparable properties, or “comps”, in your area. In some instances, a second appraisal may be required to validate the first one. If issues should arise during the pre-closing process, it’s critical that you resolve them quickly or else risk the lender delaying or even declining your loan. That’s why it’s imperative to have an experienced professional team or reputable mortgage broker on your side to help navigate these issues that may come up.


Once all the lender’s conditions have been checked off, your loan is close to closing. Your settlement will include meeting with your lender or broker to sign loan documents and pay any fees. Once processed, your loan will fund (usually within three business days), triggering a payoff to the building’s existing lender and allowing you take possession of your apartment building.

Apply for an Apartment or Multifamily Loan Today.

Or, call us at (866) 678-9420 to get started.

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