How To Finance and Acquire Multifamily Apartments

Multifamily housing is defined as a building that can provide housing for five or more families. Loans for any residences that provide separate dwelling spaces for one to four families are all fairly similar. However, financing for multifamily apartments are different. These loans require a bit more qualification to be secured.


First, the typical financial documents from the borrower will be inspected by the lender. These documents can include personal and business tax returns, personal credit score and a current rent roll for the property. Additionally, the net operating income of the property will be considered. This is calculated by subtracting the annual expenses from the annual income the property generates. Other financial aspects of the multifamily apartments are taken into consideration, such as the loan to value ratio and debt service coverage. However, what makes this type of loan most unique is that the lender will also look at the experience of the borrower. The lender wants to know if the borrower has apartment management experience, specifically in collecting rent. Of course, not every person applying for financing for an apartment building will have management experience or a perfect credit score. Seeking a loan from a small bank could increase the probability of receiving approval on the loan.


Every loan will be slightly different. The amount of money loaned, length of the loan, interest rate and any fees will all vary on the building being purchased and the lender. In most cases, about 20-30% is expected for a down payment and the loan can range in length for anywhere from 5 years to 30 years. The interest rate on the loan may be fixed, variable or hybrid. It is also important to note that the borrower is responsible for paying closing costs, due diligence reports and property insurance. The details of each loan will vary, but these are all things that need to be considered when seeking financing for multifamily apartments.


Once the loan has been approved, it is important to note that most buildings are titled to an LLC, not the owner’s name. This takes the liability off the individual. Additionally, some loans hold a penalty for early payments so read carefully in the terms of the loan for this information. When it comes time to sell the property, some loans are assumable meaning the new owner can take on the existing loan which bypasses the early payment penalties.

Acquiring financing for multifamily apartments requires knowledge from the borrower on what sort of terms to seek out. It may be beneficial to work with someone who is experienced in these types of loans to secure the best terms.


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