Transitioning from single-family to multifamily properties is one of the most powerful moves an investor can make. Here's how to finance your first 5+ unit property and accelerate portfolio growth.
Why Multifamily Is the Next Level
If you own single-family rentals, you already understand the power of passive income. Multifamily properties — defined as 5+ units for commercial lending purposes — take that model and multiply it. One building, multiple income streams, one loan, one insurance policy, one property management contract.
How Multifamily Lending Differs from Residential
For 1-4 unit properties, lenders use residential loan programs (Fannie Mae, Freddie Mac, or portfolio loans). For 5+ unit properties, you enter commercial lending territory, where underwriting is based primarily on the property's Net Operating Income (NOI) rather than your personal income.
Key Commercial Lending Metrics:
- NOI = Gross Rental Income − Operating Expenses (excluding debt)
- Cap Rate = NOI ÷ Property Value
- DSCR = NOI ÷ Annual Debt Service (lenders typically require 1.20+)
- LTV: Typically 65-75% on purchase, 60-70% on refinance
Types of Multifamily Loans
| Loan Type | Units | Best For |
| Residential DSCR | 1-4 | Small landlords |
| Agency (Fannie/Freddie) | 5+ | Stabilized properties |
| Bridge Loan | 5+ | Value-add acquisitions |
| Portfolio Loan | 5+ | Non-agency qualifying |
| Commercial Bank | 5+ | Experienced borrowers |
The Value-Add Strategy
The most popular multifamily investment strategy involves purchasing a property below market, renovating units, raising rents, and refinancing (or selling) at the new stabilized value. This is called a "BRRRR" (Buy, Rehab, Rent, Refinance, Repeat) at scale.
Bridge financing is typically used for acquisition + renovation, then converted to a permanent loan once the property is stabilized.
Getting Started: Your First Multifamily Deal
This article is for informational purposes only. All loans subject to underwriting approval.