Multifamily properties can help rental investors add scale, diversify income across multiple units, and create value through improved operations. For this article, multifamily refers to residential properties with five or more units.
Before pursuing an acquisition, investors should understand how these properties are valued, what lenders evaluate, and which type of financing supports the business plan.
Unlike one-to-four-unit residential properties, which are often valued primarily using comparable sales, multifamily properties are valued largely on their income-producing ability.
A key metric is net operating income (NOI):
NOI = Property Income − Operating Expenses
Operating expenses may include property taxes, insurance, management, maintenance, utilities, and other recurring costs. Debt payments, income taxes, depreciation, and certain capital expenditures are generally excluded.
Investors may estimate value by dividing NOI by the market capitalization rate:
Estimated Property Value = NOI ÷ Capitalization Rate
This means that increasing sustainable income or reducing controllable expenses may improve a property’s value. However, the applicable capitalization rate also depends on the property’s location, condition, age, asset class, and current market conditions.
Although the property’s performance is central to underwriting, lenders typically consider the full transaction, including:
Requirements vary by lender and loan program. Investors should avoid assuming that one lender’s occupancy, liquidity, or credit standards will apply across the market.
The appropriate financing structure depends heavily on the property’s current condition and the investor’s business plan.
Fannie Mae and Freddie Mac offer financing for qualifying multifamily properties. These programs may provide attractive long-term terms for stabilized assets, but they also involve detailed documentation and program-specific requirements.
Banks may offer competitive financing, particularly to established customers. However, their requirements can include recourse, deposits, geographic limitations, and lengthy approval processes.
Bridge financing is generally designed for transitional properties that require renovation, repositioning, lease-up, or additional time to stabilize. These loans can provide greater flexibility but commonly have shorter terms and higher costs than permanent financing.
CoreVest’s Multifamily Bridge Loan supports eligible acquisitions, renovations, lease-ups, and repositioning strategies.
Term financing is typically better suited to stabilized properties with established occupancy and cash flow. These loans can provide predictable payments and longer-term financing for investors planning to hold the asset.
CoreVest’s Multifamily Term Loan offers fixed-rate financing with multiple term options for eligible stabilized properties.
Interest rate is important, but it should not be the only consideration. Investors should also evaluate:
A lender that understands both the property and the investor’s business plan can help identify a financing structure that supports the asset from acquisition through stabilization or long-term ownership.
CoreVest provides business-purpose financing for multifamily investors, including short-term bridge loans for transitional properties and fixed-rate term loans for stabilized assets. Contact our team to discuss your property, strategy, and financing needs.
This article is provided for informational purposes only and does not constitute investment, financial, tax, legal, appraisal, or lending advice. Valuation methods and loan requirements vary by property, market, lender, and program. All loans are subject to underwriting, credit approval, eligibility requirements, program availability, and applicable terms and conditions.
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