“Apartment Building Mortgage Financing Can Have a Number of Different Applications”
Commercial mortgage financing for apartment buildings, multi family units, and multi residential buildings is pretty much the same thing, just different building and property descriptions.
Apartment buildings with five or more units fall under commercial financing versus residential financing programs.
The biggest challenge for mortgage financing of existing apartment buildings is getting the most leverage for the least amount of cost.
The lowest borrowing rates for multi unit buildings are not available unless the loan to value ratio is no higher than 65%. This ratio will even be lower in less active local and regional markets where the resale market for this type of property may not be as strong.
Higher leverage can be achieved through an insurance backed mortgage like those provided by the Canada Mortgage and Housing Corporation (CMHC), but the cost to insure will also increase the effective cost of borrowing. At higher loan to value ratios, the effective cost of financing can be almost double what you would expect to see from a uninsured mortgage of similar size.
At the same time, many commercial mortgage lenders will not approve apartment building mortgages unless they are insured, reducing the number of available lenders for situations where insurance is not required.
From a debt service point of view, commercial lenders require a net cash flow of at least 1.2 times the annual debt service for the mortgage. Outside of leverage and security, cash flow is the next most important factor to the lending decision.
Historical Income statements are closely scrutinized to make sure adequate operating costs are built into the numbers before debt service is calculated. In some cases, the income statements are adjusted to reflect cost allowances deemed to be absent which can result in the apartment building failing to cover the debt service requirements.
The commercial mortgage lender and/or the insurer can also request that capital upgrades occur before the mortgage can be disbursed. This added cost will typically need to be financed from another source of capital.
Despite the large number of apartment complexes in existence today, commercial financing can be both hard to locate and secure, depending on a number of factors related to the property including but not limited to location, condition, age, and cash flow.
To greatly improve your chances of locating and securing an apartment building mortgage in a timely fashion, I would suggest that you give me a call so we can quickly go through your options and then see if we can outline a plan to get mortgage funding in place.