Multi-Family Real Estate Lending. What’s your Lender looking for?
What is your lender looking for? What are the Multi-Family real estate lending rules? Building location and condition are top of mind for lenders when considering financing multi-family properties. Let’s take a closer look at lender concerns, or their “rules” for granting credit secured by multi-family residential real estate.
This category encompasses all forms of real estate leased (rented) to occupants for the purpose of providing a home for their residential occupation.
Lenders, in assessing the viability of a mortgage loan, will consider the following features positively:
Does your property adhere to Rent guidelines?
Rent guidelines differ from Province to Province. They are typically found in provincial legislation within your province most often described as the Residential Tenancies Act.
The Act defines the types of housing covered by the legislation, and how a landlord must operate in respect of rental periods, lease requirements, security deposits, eviction procedures, rental increase notice periods, and other operational matters. The Act will also reference whether there are restrictions or limits on rent increases.
You will want to be familiar with the guidelines applicable to your property location, and be able to demonstrate an understanding of the basics of the Act as they apply to your situation.
Are your units legal, and do they conform to building codes and any applicable municipal regulations?
This will include adherence to the local fire code and life safety requirements for multi-family real estate, as applicable, most typically evidenced by an approval certificate from the local fire department or other governmental body having authority over such matters. These regulations often pertain to self-closing doors, fire alarm stations, fire hose cabinets, and related items. Your lender will be looking for compliance. Your property insurer will insist on it!
Location is key.
- Is the property is located within a stable and desirable neighbourhood. Is it close to public transit and places of employment, with amenities nearby (e.g. schools, shopping facilities, and hospitals)?
- Does the neighbourhood exhibit stable or improving economic conditions?
- Does the property have a demonstrated history of high occupancy levels, with no undue periods of vacancy or tenant turnover?
- Do the level of rents being charged and the current and historical occupancy levels align favourably with market rent and occupancy levels for that particular sub-market location?
- Does the project offers suite sizes appropriate to the needs/demographics of the market within which it is located?
An apartment complex located in a suburban location, which has a high proportion of bachelor and one-bedroom units, will not be in as high demand as a complex with a greater number of two and three bedroom units. Conversely, a downtown location perhaps catering to young singles or couples, would see greater demand if suite sizes were more modest in size, and relatively more affordable.
Building condition and amenities are important, to securing and keeping tenants.
Does your project provide storage facilities? What about secure lobby access/intercom, and on-site or in-suite laundry facilities? Is there a resident custodian/superintendent? Do your provide at least one parking space per unit, and other features that renters have come to expect?
Knowing what your lender’s “rules” are helps you have an informed and beneficial discussion around how your building’s features addresses your lender’s concerns.