If you’ve successfully invested in 2–4 unit buildings, moving into 5+ unit or mixed-use properties feels like the logical next step.
But here’s the reality: the financing rules change fast — and many experienced investors get tripped up.

Over the years, I’ve helped Bay Area investors close deals that didn’t fit traditional lending boxes. Some were long-standing clients. Others were new investors who thought residential rules still applied.

Three Common Investor Profiles I See

  • Self-employed investors with strong cash flow, but with filed tax returns that don’t tell the full story
  • Owners of 2–4-unit buildings eyeing properties with an unwarranted unit
  • Residential 2–4-unit building investors who discover a 5–10 unit or mixed-use deal and assume the same down payment and loan terms apply

That assumption is where deals often stall — or fail.

Why This Changed

After the 2008 financial crisis, new rules like Ability-to-Repay reshaped lending. Traditional banks tightened standards, especially for income verification and global cash-flow analysis.

Commercial lenders responded differently. Some focused less on your personal tax returns and more on whether the building itself cash-flows.

That’s where DSCR-based financing entered the picture.

The Five Conversations That Used to Kill Deals

  1. Down Payment Shock
    Many 5+ unit properties historically required ~50% down in San Francisco. Vacant units in the building can knock that even lower. It’s only fine if you are involved in a 1031 Exchange and have those funds.
  2. No 30-Year Fixed Loans
    Most banks offered only 5, 7, or 10-year fixed terms, often with balloons. But, what about after that time?
  3. Surprise Operating Expenses
    Management, vacancy, repairs, marketing — all reduced NOI.
  4. Limited Interest-Only Options
    Cash-flow flexibility was short-lived, if available at all.
  5. Deposit Relationship Requirements
    Banks often required 10% of the loan amount on deposit, tying up additional capital.

What’s Changed — And Why It Matters

New non-bank and Wall Street-backed lenders have re-opened doors for 5-10 unit apartment buildings.

  • Down payments closer to ~30%, not 50%. Vacant Units can be given 75% of Market Rents
  • 30-year fixed loans now available (rates are higher, flexibility improves)
  • Simplified NOI calculations — often taxes, insurance, and debt only
  • 10-year interest-only options available
  • No deposit relationship requirements
  • No borrower tax returns, nor employment needs to be verified, maybe is a positive or relief for some investors, and maybe neutral for others.

On a $2MM building, that can mean $300,000+ less cash tied up at closing.

The Takeaway

Stepping into 5-10 unit investing isn’t about finding a loophole — it’s about using the right capital stack.

Residential thinking won’t get you there.
Strategic financing will.

🔎 BROKER’S EDGE – Smarter Real Estate Lending
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📞 Steven Hook | Residential & Commercial Mortgage Broker

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This content is provided for informational purposes only and is not a loan commitment or guarantee of financing. Loan programs, rates, terms, and conditions are subject to change and borrower qualification. Individual results may vary.

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