The key to getting a multi unit property financed is to clearly understand and then proactively addressing what are typically the major concerns with this type of commercial mortgage financing request.
More specifically, the main financing challenges related to multi unit commercial mortgages are cash flow, down payment or equity in the building, and the condition of the building.
So lets start first with cash flow.
When a commercial lender looks at a multi unit residential application, one of the first things they will focus on is the net cash flow available for debt servicing.
This is going to vary among lenders in terms of how much net cash flow is enough, and each lender will have their own additions and subtractions to the operating cash flow statement you provide, but in the end “A” lenders will require a higher net cash flow than “B” or “C” lenders so its going to be important to understand where the available cash flow that you have to work with will fit among lenders that do this type of financing.
And because the lender will typically only rely on historical cash flow, the fact that you may increase rents or reduce vacancy rates in the future will not likely be factored in so you have to work with the existing cash flow when trying to qualify for a commercial mortgage.
The second major financing challenge is the equity in the building for a building you already own, or the down payment you are prepared to make to acquire a multi unit residential property.
The minimum equity requirement for a commercial mortgage on a multi rez is going to be 15% of the value of the property, and at a 15% equity level the building will need to be insured.
In situations where insurance is required, it can be challenging to get the insurer, such as CMHC to insure based on your assessment of fair market value or even the actual purchase price. It’s not uncommon that they make adjustments to the gross value of the property which can reduce the amount of the mortgage that they are prepared to insure, requiring you to need to come up with more cash to put into the property as equity.
The third major challenge when trying to arrange financing for a multi unit residential property is the condition and age of the building.
Older buildings, or ones that require a certain amount of repair, can be closely scrutinized by the lender and/or the insurer which can result in a deficiency list that you will have to rectify before they will advance all the funds approved for financing.
Once again, this tends to be more of a challenge in situations where a high loan to value financing facility is going to be required due to the fact that the lender and/or the insurer want to make sure that the equity they are relying on for security will be maintained during the term of the loan.
If you are looking for multi unit residential property financing for a purchase or refinancing scenario, it can make a great deal of sense to work with an experienced mortgage broker who can help proactively help you overcome the three challenges mentioned above and get financing in place in the time you have to work with.
I'm a Toronto Mortgage Broker that arranges mortgage solutions on residential and commercial real estate property. With over 30 years of mortgage financing experience, I'm able to quickly assess your financing requirements and provide relevant solutions for your immediate consideration. Joe Walsh Google+ YouTube Channel