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Multifamily Investment Property Loans (5–9, 10–25 & 25+ Units) in Arizona
Multifamily NOI Waterfall & Debt-Yield Sizing Model
Multifamily Loans vs Traditional Bank Underwriting Matrix
| Dimension | Multifamily Loans (Wholesale) | Traditional Bank | Investor Advantage |
|---|---|---|---|
| Valuation Methodology | Capitalized Net Operating Income (NOI ÷ Market Cap Rate) + Sales Comps | Comparable sales only on 1–4 unit residential | Increasing rents or cutting expenses directly increases building value |
| 5–8 Unit Small-Balance DSCR | Streamlined residential-style DSCR underwriting without full bank covenants | Slow commercial bank committee with annual tax return audits | Closes 5–8 unit buildings with residential speed |
| Recourse Options | Non-recourse and carve-out shelves available on stabilized 5+ unit assets | Full personal recourse and global cash-flow covenants | Limits sponsor personal liability on larger apartment holdings |
| Value-Add CapEx Facilities | Bridge-to-perm shelves fund unit interiors and exterior CapEx in draws | Underwrites strictly on historical depressed T-12 NOI | Captures upside on under-managed mom-and-pop apartment buildings |
Structuring Checklist & Underwriting Notes
- Always re-calculate property taxes at the post-purchase assessed value in non-non-disclosure states—underwriters will adjust the T-12 tax line to reflect the new purchase price.
- Include a 3% to 5% third-party property management fee and $250–$350/unit annual replacement reserves in your pro-forma, even if you self-manage.
- Implementing Ratio Utility Billing Systems (RUBS) to recapture water/sewer/trash costs directly boosts NOI and increases maximum loan proceeds.
Frequently Asked Questions: Multifamily Loans
How does underwriting change when moving from a 4-plex to a 5+ unit multifamily building?
Properties with 1 to 4 units are valued primarily on residential sales comparables and underwritten on gross rent versus PITIA. At 5+ units, the asset enters commercial multifamily underwriting—valued on Net Operating Income (NOI = Effective Gross Income minus Operating Expenses) and tested against a 1.20x–1.25x NOI DSCR and minimum Debt Yield.
What is Debt Yield and why do multifamily lenders care about it?
Debt Yield equals Net Operating Income divided by Total Loan Amount (independent of interest rates or amortization). A lender requiring a 9.5% Debt Yield ensures that for every $1,000,000 borrowed, the property generates at least $95,000 in annual NOI.
Can I finance a 5-to-8 unit apartment building with a streamlined DSCR loan?
Yes. Dedicated 5–8 unit (and 5–10 unit) small-balance DSCR shelves bridge the gap between residential and commercial lending—requiring no personal tax returns while closing in an LLC with 30-year amortization.