07The half of the market that is not owner-occupied
Small-balance investment property
Not every building an operating business buys is one it occupies. For the multi-tenant strip next door, the four-unit flex row, or the small apartment building held in the family entity, the underwriting moves off the business and onto the rent roll.
The capital stack
- Owner equity30%
- First mortgage70%
Terms
What this programme actually looks like
- Typical leverage
- 65% to 75%, whichever of LTV, DSCR and debt yield binds first
- Coverage
- 1.20× to 1.30× on a stressed constant for stabilised property
- Debt yield
- Commonly a 9% to 11% floor, and it binds more often than borrowers expect
- Amortisation
- 25 to 30 years on multifamily, 20 to 25 on commercial
- Recourse
- Full at this size, with non-recourse available on stronger multifamily deals
- Timeline
- 35 to 60 days
Illustrative only. Bollard is a fictional business built as a website demonstration — the figures below are worked examples, not an offer, a quote or a rate sheet.
Fit
When it is right, and when it is not
A lender that only publishes the first list is selling. Both lists below are the same length in real life.
The right instrument when
- The rent roll is real, documented and reasonably seasoned.
- You are buying the space next door because you will grow into it, and leasing it in the meantime.
- The property stands on its own income rather than on your operating company.
The wrong instrument when
- The building is half empty and the plan is a lease-up. That is a bridge file with a business plan attached.
- You want SBA terms. Owner-occupancy is a condition of those programmes and an investment property does not meet it.
Underwriting
What gets looked at, in what order
- 01
Three tests, one answer
LTV, DSCR and debt yield are computed independently and the smallest wins. Our sizing calculator names which one bound and by how much.
- 02
Underwritten NOI, not asking NOI
A lender will apply its own vacancy, management fee and replacement reserve regardless of what the offering memorandum shows.
- 03
Lease quality
Term remaining, tenant credit and renewal history move proceeds more than a headline cap rate does.
Worked example
Worked example — four-unit flex row
- Purchase price
- $1,450,000
- Underwritten NOI
- $118,000
- Cap rate at purchase
- 8.14%
- Loan sized at 1.25× DSCR
- $1,046,000
- Loan sized at 70% LTV
- $1,015,000
- Binding constraint
- LTV — by $31,000
A worked example at illustrative terms. Change the rate by half a point and the binding constraint changes with it.
Questions
What people ask about this programme
Can I mix an owner-occupied deal and an investment deal?
They are usually two files with two structures, even when one closing table serves both. Trying to make one instrument do both is where deals stall.
Why does debt yield keep binding?
Because it ignores the rate. When rates are low, LTV and DSCR both flatter a deal; debt yield does not move, so it becomes the constraint that holds.
Next bay
Tell us about the building
A twenty-minute conversation is usually enough to know whether a deal works, which programme fits, and what your equity actually supports.
Or call the desk
(816) 555-0142Monday to Friday, 8am – 6pm Central
A demonstration number in the range reserved for fiction. It does not ring anywhere.