Multifamily Commercial Loan Guide

Financing options for multifamily property vary widely from other commercial or industrial properties.

The good news is that multifamily property loans usually carry a higher LTV ratio than other property types.

Loan terms usually range from 25 to 30 years

Most loans for residential income property are termed as ‘recourse loans’. This means that the lender has ‘recourse’ to your personal assets in the event you default on the loan. Needless to say, you need to make sure you are ready to assume the financial responsibility of making your payments in a timely fashion.

Commercial Real estate loan application

Loan guidelines for multifamily properties:

Considerations	Guidelines
Property type	Good quality
Maximum amortization	3- to 10-year loan term, 25- to 30-year amortization
Loan to value	75-80% maximum
Debt service coverage ratio	1.15-1.20 minimum
Age and quality	Properties completed after 1975 preferred Older properties with material renovations may be considered
Market/location	Stable markets with positive economic and demographic indicators preferred Effect of new supply must be considered Rent versus buy analysis should be favorable Adequate retail services within close proximity preferred Should have good access and visibility from a main road and be located near major employment centers
Design/construction	Pitched roofs and concrete slab foundations preferred Separately metered properties with access to public utilities required
Amenities	Competitive amenity package preferred Properties with clubhouse and pool preferred
Tenant mix	No more than 20% concentration of a single tenant mix (including employees of one employer or industry) preferred Student housing acceptable, subject to loan-to-value, pricing, and reserve adjustments
Unit mix/size	Unit mix should be in line with market demand Unit layouts and sizes must be competitive
Parking	Ratio must comply with local code, and match or exceed ratio for comparables; 1 space per bedroom, minimum, preferred

Income Analysis Guidelines

Considerations	Guidelines
Rental income	Based on lower of market or actual rental income collected, with consideration given to historical performance
Other income	Should be stable, recurring, and a market norm
Economic vacancy	Typically equal to market vacancy, actual vacancy, or 5% of gross income, whichever is greatest
Effective gross income (EGI)	Rental income plus other income, less economic vacancy
Management fee	Equal to market or actual, whichever is greatest
Operating expenses	Greater of latest full year or 3-year historical average
CapEx reserves	Typically $250 per unit, depending on property age and condition; property condition report will provide guidance for this number
Net operating income (NOI)	EGI less management fee, operating expenses and CapEx reserves