Multifamily properties — apartment buildings with two or more units — are among the most financed commercial real estate assets in the country. The demand for rental housing creates a large, active lending market with competitive rates and multiple program options.
Here's a guide to multifamily financing for investors at different stages.
Defining Multifamily by Unit Count
Lenders categorize multifamily differently depending on size:
- 2 to 4 units (small residential): Financed like residential loans — conventional, FHA, or VA programs
- 5+ units (commercial multifamily): Commercial underwriting, DSCR-based, different loan products
The transition from 4 to 5 units is significant. At 5 units, you're in the commercial lending market, which has different requirements, rates, and programs.
Commercial Multifamily Loan Types
Conventional commercial: Bank or life company loans for stabilized properties. Typically 5, 7, or 10-year fixed or floating rates with 25 to 30-year amortization. Require 25 to 35% down, strong DSCR (1.20x+), and clean financials.
Agency loans (Fannie/Freddie/HUD): The gold standard for larger, stabilized multifamily. Lowest rates, longest terms (up to 35 years), but strict property and borrower requirements. Minimum loan sizes typically $1M to $5M depending on program.
DSCR loans: Available for 1 to 8 unit properties, qualify based on rental income. No personal income documentation. Popular for investors scaling a portfolio.
Bridge loans: For acquisitions of unstabilized or value-add properties. Higher rates, short terms, no DSCR requirement. Exit into permanent financing after stabilization.
Key Underwriting Metrics
- Cap rate: NOI divided by purchase price — measures yield relative to market
- DSCR: NOI divided by debt service — typically 1.20x minimum for permanent financing
- LTV: 65 to 80% depending on property class and loan type
- Occupancy: Stabilized lenders typically want 90%+ occupancy for 90+ days
Value-Add Multifamily
Value-add deals — properties with below-market rents, deferred maintenance, or high vacancy — require bridge or hard money financing rather than permanent loans. The strategy: acquire at a discount, renovate, raise rents, stabilize occupancy, then refinance into permanent debt at the higher value. Lenders underwrite to the business plan as much as the current numbers.
Market matters as much as the property. A 10-unit building in a market with strong rent growth and low vacancy is a very different risk profile than the same building in a declining market. Lenders in competitive markets are more aggressive on terms. Location is always part of the underwriting.
Getting Started
For first-time multifamily buyers, the 2 to 4 unit space is the most accessible entry point — residential financing is available, and some buyers even owner-occupy one unit to access better terms. As your portfolio grows, the commercial lending market opens up with better programs and rates for experienced investors.
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Talk to KQT AdvisorsKQT Advisors is a commercial loan broker and does not make lending decisions. All loan approvals, rates, and terms are subject to lender underwriting. Information in this article is for general informational purposes only.
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