Commercial Real Estate Loan Guide: Owner-Occupied and Investment
Buying the building you work in is a different deal from buying one you rent out. Here is how each is financed, what the ratios need to be, and what it costs in 2026.
Oct 6, 2026Read
A multifamily flip has three money problems, not one: buying the building, paying for the rehab, and getting out at the end. Each is funded differently, and the deals that go wrong usually go wrong because the exit was not arranged before the rehab started. Here is how the stack is normally built in 2026, and where business funding helps and where it hurts.
The three stages of the money
- Acquisition: a bridge or hard money loan covering 70–80% of the purchase.
- Rehab: a construction holdback released in draws as work is inspected and completed.
- Exit: either a sale, or a refinance into long-term debt such as a DSCR loan or an agency loan.
Bridge and hard money: what the market looks like
Across US bridge and fix-and-flip lenders in late 2026, typical terms were:
| Loan type | Rate | LTV | Term | Points |
|---|---|---|---|---|
| Fix and flip | 9–13% | 70–80% | 6–12 months | 1–3 |
| Bridge | 9–12% | 65–80% | 6–24 months | 1–2 |
| Rental / DSCR (exit) | 9–13% | 65–80% | 12–36 months+ | 1–2 |
Rates vary by state and by sponsor experience. Points are charged separately from the rate — two points on a $600,000 loan is $12,000 at closing.
The two numbers that cap your loan: LTC and ARV
Loan to cost (LTC) is the lender's share of purchase plus rehab. Many lenders go to 80–90% of cost for experienced sponsors.
After repair value (ARV) caps the whole facility, commonly at 70–75%. Whichever is lower governs.
Example. Purchase $800,000, rehab $200,000, ARV $1,300,000.
- LTC at 85% of $1,000,000 = $850,000
- ARV at 70% of $1,300,000 = $910,000
- Maximum loan: $850,000, so you bring $150,000 plus closing costs and reserves.
How draws work, and why they strain cash flow
Rehab money is not handed over at closing. You complete a stage, request a draw, the lender inspects, and funds are released — typically in 3 to 10 business days. That means you front each stage with your own working capital and get reimbursed.
This is the single most common cash flow trap on a flip. Plan for at least one full draw cycle of float, plus a contingency of 10–15% of the rehab budget.
Where business funding fits — and where it does not
Useful:
- A business line of credit to float draws and cover carrying costs between reimbursements. This is the best fit, because you pay only for what you use. See the BLOC guide.
- Equipment financing if you own the construction crew and need tools, trucks or machinery across multiple projects.
- A term loan for the equity gap, if your operating business genuinely produces the cash flow to service it independent of the flip.
Risky:
- A merchant cash advance to fund rehab. Daily remittances against an operating business, repaying a project that produces nothing until it sells, is a structural mismatch. If the flip runs long — and flips run long — the advance keeps taking money from a business that is not being funded by the project.
- Borrowing the down payment without disclosing it. Bridge lenders verify source of funds, and undisclosed borrowed equity can void the deal at closing.
Underwriting a multifamily flip: what lenders check
- Experience. Completed projects in the last three years is the strongest factor; first-timers see lower LTC and higher rates.
- Liquidity. Cash reserves covering several months of interest plus contingency.
- Credit. Usually 650+ for the better bridge pricing.
- The scope of work. A line-item budget with contractor bids, not an estimate.
- The exit. Comparable sales for a flip, or projected rents and DSCR for a refinance.
- Entity and insurance. Most lenders require an LLC, builder's risk cover and liability insurance.
Plan the exit before the first demolition
If the plan is to hold and refinance, model the DSCR now: net operating income divided by the new annual debt service. Most DSCR lenders want 1.20–1.25x, and rents must support it at the rate available when you refinance, not today's. If the plan is to sell, be honest about days on market in your submarket and carry costs for that period.
Frequently asked questions
How much cash do I actually need?
Typically 15–25% of total project cost, plus closing costs, points, interest reserves and a rehab contingency. On a $1,000,000 project, $200,000–$300,000 of liquidity is a realistic planning figure.
Can I use a DSCR loan to buy and rehab?
DSCR loans are generally for stabilised, income-producing property. Use a bridge or fix-and-flip loan for the work, then refinance into DSCR once units are leased.
Do bridge lenders care about my personal income?
Much less than a conventional mortgage lender. They underwrite the deal, the ARV and your track record. They still want a personal guarantee and proof of reserves.
What if the rehab runs over budget?
Extensions are usually available for a fee, and some lenders will increase the facility if ARV supports it. Build the contingency in from the start — it is far cheaper than an emergency extension.
Full deal maths on a six-unit building
| Item | Amount |
|---|---|
| Purchase price | $800,000 |
| Rehab budget (6 units) | $200,000 |
| Total project cost | $1,000,000 |
| Bridge loan at 85% LTC | $850,000 |
| Your equity | $150,000 |
| Points (2) and closing costs | About $28,000 |
| Interest at 11% on average outstanding balance over 9 months | About $60,000 |
| Taxes, insurance and utilities for 9 months | About $22,000 |
| Total cash needed beyond the loan | About $260,000 |
If the ARV is $1,300,000 and you sell, selling costs of 6% take roughly $78,000, leaving a gross profit near $310,000 before tax. If instead you refinance at 70% LTV, you draw about $910,000 — enough to retire the bridge and recover part of your equity, with the rest trapped in the deal until it is sold or refinanced again.
The two numbers that destroy that profit are time and scope creep. Every extra month costs roughly $9,000 in interest and carry, and rehab overruns are rarely 5% — they are 15–20% when the walls come down.
Keep the operating business and the project separate
Hold each project in its own entity, keep project accounting out of the operating company's bank account, and avoid pledging business assets for project debt. Two reasons: lenders on both sides underwrite a cleaner file, and a project that runs long cannot take the operating business down with it.
Questions to ask a bridge lender before you commit
- Is the LTC calculated on purchase plus rehab, or purchase only?
- How many days from draw request to funds, and who inspects?
- Is interest charged on the full facility or only on funds drawn?
- What does an extension cost, and how many are available?
- Is there a prepayment penalty or minimum interest period if I sell early?
- Do you require experience verification, and does a partner's experience count?
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