Creative Ways to Finance a Commercial or Multifamily Property Purchase

Written by: Kris Lindahl of The Kris Lindahl Team at RE/MAX Results, Minnesota

Buying an apartment building or commercial property to generate income through the collection of rent is an excellent way to build up a somewhat passive income stream. However, it requires getting funding to make the first purchase. Traditional loans for multifamily properties are common, but they are not the only way to get started. With these creative financing options, people may be able to secure better terms and have a greater likelihood of approval for the purchase.

Financing Factors to Consider

Although many people who purchase commercial buildings obtain their funding with a loan from a bank or other traditional lending arrangement, there are reasons that some may decide to choose an alternative route for funding. Getting financing for an apartment building is quite a bit different than purchasing a single-family home as a primary residence, but lenders may still place strict requirements. Lenders typically demand a down payment of at least 20 percent, or more if the property represents a higher risk. They may also oblige applicants to show that they have 6-9 months of liquid assets to cover expenses, which could represent tens or hundreds of thousands of dollars.


One unique aspect of apartment building financing is that some loans can be assumed by a new borrower. In this instance, the new borrower takes over the mortgage for the property, with the terms generally remaining the same. Not all loans are structured to allow assumption, and the new borrower must be able to qualify for the loan as fully as the original borrower. However, for people with significant assets and a seller who needs to get out, it is worth investigating as an option.


Getting a loan to buy a multifamily property calls for a combination of cash, assets, credit, and savvy that some people starting the process may not yet have. The reason lenders are often more willing to lend to a pair of applicants is that the borrower profile becomes more complete, and that lowers the lender’s risk. In some cases, a borrower has the cash to make the down payment, but they lack the experience in property management to put the lender at ease with the purchase. Forming a partnership with a person who fulfills the remaining parts of the lending equation may become a beneficial arrangement for both parties.

Private Lending and Syndicated Funds

Although banks are often restricted by standardized underwriting requirements for various kinds of mortgages, private lenders may not be bound by the same limitations. Buyers who cannot qualify for a traditional loan, or who are seeking more favorable terms, might try looking for a private lender or group of lenders. With an experienced private lender, the loan terms can be as clearly defined and legally sound as a bank loan. The difference is that a private lender may be willing to accept a smaller down payment, require fewer assets in reserve, or allow the borrower to renegotiate within a shorter period of time. For larger loans, people may consider borrowing through a syndicated fund, which is a group of private lenders who provide funding to a single person.

Private Investment

Like any other business venture, people interested in owning an apartment building for rent may decide to look for private investors. Private investors typically offer up a share of funding in exchange for an interest in the property’s income and profits. This funding could allow the buyer to qualify for loans they need to purchase or improve the property they buy. Private investors may retain limited decision-making power in the future of the property. Borrowers who take this route should be careful when considering loans. Some mortgages are recourse loans, which means that if the borrower should default, the lender can go after the assets of the borrower and all investors to obtain payment.

Seller Financing

If the property’s existing owner has no liens on the property, they may be willing to consider seller financing for the propertyThis is most practical for buyers who have a lot of potential, but need to gather greater assets before applying for other kinds of funding. Sellers are not always open to financing the mortgage for the property themselves. However, if a borrower can demonstrate a clear plan for managing the property, and prove future benefits to the seller, they may be able to secure the purchase without the same kinds of restrictions for traditional loans.

As it turns out, there are all different kinds of lending arrangements for people interested in buying commercial property for investment. With these options, borrowers can choose the type of lending that will work best for their needs.

Thank you to our friend, Kris Lindahl, for posting this!

Additional helpful links from Kris: