How to finance the purchase of a building with 5 or more units

Why do five units change everything?

Up to four units, the mortgage looks like one for a house. From five units up, the building is financed like a business.

The lender then looks at what the building earns. Your personal income counts for less than the rents, the expenses and the condition of the building.

Five units is also the threshold for CMHC insurance on multi-unit rental buildings.

This distinction also changes the timelines and the documents requested. A loan on a building with five or more units is reviewed application by application, with an appraisal and an analysis of the income.

It finally changes who you deal with. Banks, credit unions, specialized lenders and private lenders each work differently, and CMHC steps in through insurance.

What does the lender look at?

The lender wants to know whether the building pays for its loan. Four elements come up almost every time.

• Net operating income: rents minus actual expenses
• The debt service coverage ratio: that income compared with the loan payments
• The value of the building, set by an appraisal
• Your equity and your experience

The debt service coverage threshold varies by lender and product. At 50 MLI Select points, CMHC states a minimum of 1.10.

Net operating income is calculated with actual expenses: taxes, insurance, maintenance, energy, management and vacancy. An overly optimistic figure lowers the retained value.

The debt service coverage ratio shows by how much income exceeds the loan payments. The higher it is, the more margin the lender sees.

Your equity also counts. It shows your commitment and reduces the lender’s risk.

How much of the price can you borrow?

It depends on the lender and on any insurance. CMHC sets a ceiling of 85% of lending value for standard rental housing.

That value is set by CMHC and may differ from the price you pay. Your equity is therefore calculated on the retained value, not only on the price.

A lender without insurance sets its own limit. It is often lower, and you have to ask the lender.

The calculation happens in two steps. The lender first sets the value of the building, then applies its financing percentage to that value.

If the appraisal comes in below the agreed price, your equity must increase. Plan for that possibility in the purchase offer with a financing clause.

You also need room for closing costs: transfer duties, notary, appraisal, inspection and any insurance premium come on top of the price.

What conditions does CMHC set for the borrower?

To insure a loan on a standard rental building, CMHC asks for the following.

• A net worth of at least 25% of the loan
• At least five years of experience managing multi-unit buildings, or a manager who has it
• At least 70% of floor area and loan value in residential use
• Amortization up to 40 years for an existing building

A first purchase without experience is not ruled out automatically. An experienced property manager can fill that gap, according to CMHC’s page.

These criteria apply to CMHC insurance. An uninsured lender may set others, sometimes more flexible on experience, often more demanding on equity.

Net worth is assessed across your whole balance sheet, not only the building you buy. Prepare documents that show it.

Ask the lender early which conditions apply. A short list of requirements, confirmed in writing, saves a lot of time later in the process.

How does MLI Select fit in?

MLI Select can improve the loan if the project commits to affordability, energy efficiency or accessibility. You need at least 50 points.

For an existing building, a 50-point tier unlocks up to 85% of value and 40-year amortization. The 70 and 100 point tiers extend amortization to 45 and 50 years.

The affordability commitment lasts at least 10 years. It affects your rents, and therefore your future income.

For a purchase, these commitments must be made before the closing date. It is better to consider them at the purchase offer than when signing the loan.

A building that is already affordable or already efficient can offer points almost for free. A building that needs renovation will require work to earn them.

What steps should you follow?

The path is the same from one purchase to the next, although timelines vary with the application.

• Gather the leases, income and expenses for the last two years
• Calculate net operating income and compare it with the asking price
• Make a purchase offer that reserves financing and inspection
• Have the building appraised and check the work ahead
• Compare loan offers on rate, amortization, fees and penalties

Do not rely on the income the seller advertises. Ask for signed leases and expense records.

The time between the offer and closing depends on the appraisal, the inspection and the lender’s answer. Do not set a closing date before speaking with the lender.

Keep room for the building inspection. A roof, plumbing or boiler to replace changes your budget and sometimes the retained value.

Finally, compare offers on the same basis. A lower rate can hide higher fees, a shorter amortization or a heavier penalty, so look at the total cost over the term.

What should you do next?

First establish your net operating income with verified figures. Without it, no loan offer can be compared seriously.

Then gather your personal documents and the seller’s. A complete application avoids back-and-forth with the lender.

On PMECAP, the Plex and multi-unit financing family presents these options. The request form goes to a brokerage firm registered with the AMF. Rates and terms are confirmed with the lender.

FAQ

Sources

• SCHL : Assurance prêt hypothécaire, logements locatifs ordinaires (accessed October 13, 2026)
• SCHL : APH Select (accessed October 13, 2026)
• SCHL : Assurance prêt hypothécaire pour immeubles collectifs (accessed October 13, 2026)