Multi Family Commercial Mortgage Basics

April 13, 2023 commercialfundingnetwork.com 1

Multifamily Apartment Building Financing

Prepared and Presented by:

Daniel G. AlcornCommercial Funding Network, Inc.

518-346-2115


• Formed in 1999 by banking executives with experience dating to the ’70s.

• 1999 to 2003 - Located in Vermont

•2003 - Relocated company to Niskayuna, New York.

Daniel G. Alcorn, company founder and President, served from 1984 to 1998 as Senior Vice President of VT based Chittenden Bank.

http://www.enchantedlearning.com/usa/statesbw/


Commercial Real Estate Finance


• Who lends money on income producing properties?

• Are all multi family properties the same?

• Underwriting the three “C’s”


Multifamily Apartment Building FinancingWho lends money on income producing properties?

• Banks• Savings Institutions• Credit Unions• Commercial Lenders• Insurance Companies• Pension and Retirement Funds• Note and Mortgage Buyers (purchase mortgages)• Self Directed IRA and Roth IRA• Private “hard money” lenders• Friends and Family members


Multifamily Apartment Building FinancingWho lends money on income producing properties?

Small Business Administration 504Requires meeting job creation, community

development or public policy goals

10-20% Equity

SBDC makes SBA guaranteed loan up to 40%

50% lender, secured by 1st position

Long term fixed rate financing

Removes uncertainty of balloon refinancing


Multifamily Apartment Building FinancingAre all multi family properties the same?Do some lenders prefer certain properties?

• Loan Size and Cash Out (refi)

• Owner Occupied vs. Investor

• Zip Code: 25,000 population and / or within range of metro location

• Number of Rental Units• Minimum 3 (stated income)• Minimum 5 (conventional)

• Nature of Rental Units • monthly vs. lease contract• rooming house• square footage / unit


Multifamily Apartment Building FinancingUnderwriting the “ three C’s”

• 1 - Credit Rating

• 2 - Collateral

• 3 - Capacity / Cash Flow



1 - Credit Rating

• FICO Credit Score

• Revolving Debt BalanceCredit Line Pct Used / Available

• DTI – Owner’s Personal Debt to Income Ratio



2 - Collateral

• Sales Comparison Method• Market Approach• Recent Sales• Similar Properties

• Income Capitalization Method• Discounting the value of all future net income

• Loan To Value • Private lenders 60 to 65%• Normal 70 to 75%



3 – Capacity / Cash Flow

• Full Documentation• 2 years Business Tax Filings • 2 years Personal Tax Filings• Interim Income Statement and Bank Statements

• Limited / Stated Income• Cash Flow from investment property, owner

occupied business and / or personal




• Full Documentation• 2 years Business Tax Filings

• Form 1120 or 1065

• Net Income• + depreciation• + interest expense• + amortization • = cash available

• Debt Service • Existing P&I payments • Existing lease payments• Proposed payments

• Coverage Ratio 1.20 : 1.00• Cash : Debt Service




1. List each tenant with unit rent and square footage 2. Determine gross monthly income3. Subtract actual or assumed vacancy factor

4. Equals Adjusted or Effective Gross Income




From Adjusted / Effective Gross Income

Subtract Actual Property ExpensesReal Estate TaxesProperty InsuranceWater / SewerTrash RemovalSeasonal Snowplowing / Landscaping

Subtract Assumed or Actual Property ExpensesReplacement ReserveRepairs / MaintenanceJanitorial / Third Party Management

Equals Net Operating Income


Multifamily Apartment Building Financingexample:

26,690 / 1.20 DSCR = 22,242 annual P&I payments$1853.47 monthly

Net Operating Income $26,690

$1853.47 monthly

8% interest rate

20 year term

$221,590 mortgage

Quick Test:

Is an investor interested in earning 10%?

(If so, the $26,690 net income is 10% of $____________.)



Daniel G. AlcornCommercial Funding Network, Inc.

518-346-2115 w212-658-9003 f

Date post:	26-Jun-2015
Category:	Economy & Finance
Upload:	daniel-alcorn
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Multi Family Commercial Mortgage Basics

Economy & Finance