How to purchase an apartment building: the short version
To purchase an apartment building, work out what its income supports, get a lender’s quote, sign a purchase agreement with a due diligence period and a financing contingency, inspect the books and the building, then close with enough cash for the down payment, closing costs and reserves. The process takes longer than buying a house and depends far more on the property’s numbers than on yours.
The biggest shift for most buyers is that the building has to qualify. A lender on a 16-unit property cares most about whether the net operating income covers the loan payment with room to spare. Your credit, net worth and experience still matter, but a strong borrower cannot rescue a building whose income does not support the loan.
Why five units is the commercial financing line
Five units is where an apartment building stops being financed like a house. Buildings with one to four units qualify for residential mortgages, including FHA-insured loans under Section 203(b), which serve owner-occupied one- to four-unit homes with as little as 3.5% down. Buildings with five or more units need commercial multifamily loans: Fannie Mae and Freddie Mac multifamily programs and HUD’s Section 223(f) all start at five units.
That line changes how the loan is sized, what the lender reviews and what the paperwork looks like. It also changes the borrower: commercial lenders usually lend to a single-purpose LLC or partnership that owns only the building, not to you personally.
| Factor | 1 to 4 units (residential) | 5+ units (commercial) |
|---|---|---|
| Loan sized mainly on | Your income, debts and credit | The building’s NOI and debt service coverage |
| Typical borrower | You, personally | A single-purpose LLC or partnership |
| Common loan types | Conventional, FHA, VA | Fannie Mae, Freddie Mac, HUD, bank, bridge, life company |
| Value set by | Comparable home sales | Income approach (NOI and cap rate) plus comparable sales |
| Term and payoff | Usually 30 years, fully amortizing | Often 5 to 15 year terms with a balloon, or longer for HUD |
| Prepayment | Usually no penalty | Often yield maintenance, step-down or defeasance |
How much does an apartment building cost?
An apartment building costs what its net operating income is worth to buyers in that market, so price is set mainly by NOI divided by the local cap rate. A building with $130,000 of NOI in a market where similar buildings trade at a 6.5% cap rate is worth about $2,000,000. The same NOI at a 5.5% cap rate points to about $2,364,000.
Buyers also compare price per unit and price per square foot against recent sales nearby, which keeps the income math honest. A 16-unit building at $2,000,000 is $125,000 a unit. If similar buildings on the same street sold for far less per unit, ask why.
The price is only part of what you need. Plan for the down payment, lender fees, third-party reports, title and legal costs, transfer taxes in some cities, lender escrows and reserves, and money for repairs you will find. In the worked budget below, these costs add almost a third on top of the down payment.
Apartment building loans: Fannie Mae, Freddie Mac and HUD compared
Most stabilized apartment buildings with five or more units are financed through Fannie Mae, Freddie Mac, HUD or a bank. The agency and HUD programs below are made through approved lenders, not directly by the agencies. Terms are taken from each agency’s published term sheets and guidance as of 2026 and can change.
| Program | Loan size | Term and amortization | Max LTV | Min DSCR | Recourse |
|---|---|---|---|---|---|
| Fannie Mae conventional (DUS) | No stated cap | 5 to 30 year terms, up to 30-year amortization | 80% | 1.25x | Non-recourse for most loans over $750,000, with bad-act carve-outs |
| Fannie Mae Small Mortgage Loans | Up to $9 million nationwide | 5 to 30 year terms, up to 30-year amortization | 80% | 1.25x | Non-recourse with carve-outs |
| Freddie Mac Conventional Small (launched April 2026, succeeds SBL) | $2 million to $10 million | 5, 7, 10, 12 or 15 year terms, up to 30-year amortization | 80%, subject to lender adjustment | 1.25x | Non-recourse with carve-outs |
| HUD/FHA Section 223(f), market-rate | No stated cap; larger loans face tighter limits | Up to 35 years, fully amortizing | 87% | 1.15x | Non-recourse |
| HUD/FHA Section 223(f), affordable or subsidized | Same | Up to 35 years, fully amortizing | 90% | 1.11x | Non-recourse |
| HUD/FHA Section 221(d)(4) | Construction plus permanent loan | Covers construction, then a long fixed-rate term | 87% of cost for market-rate | 1.15x | Non-recourse |
Fannie Mae and Freddie Mac multifamily loans
Fannie Mae and Freddie Mac buy loans that approved lenders make on existing, stabilized apartment buildings, and they are two of the main sources of long-term debt for five-plus unit properties. Both cap leverage at 80% of value and require at least 1.25x debt service coverage on their standard small and conventional products, and the loan is the lower of the two limits.
Fannie Mae’s term sheets say the property should have at least five units and be stabilized, typically around 90% occupied for 90 days before funding. Its Small Mortgage Loans run up to $9 million nationwide with terms from 5 to 30 years. On April 15, 2026, Freddie Mac launched Conventional Small within its conventional platform, with a short transition for Small Balance Loan applications. It covers loans from $2 million to $10 million, with fixed-rate terms of 5 to 15 years and up to 30-year amortization.
Expect yield maintenance or a similar prepayment premium if you pay off a fixed-rate agency loan early. That cost matters if your plan is to sell or refinance within a few years.
HUD and FHA apartment loans: 223(f) and 221(d)(4)
HUD’s FHA multifamily programs offer the longest terms and highest leverage, in exchange for more paperwork and a longer approval. Section 223(f) insures loans to buy or refinance existing apartment buildings with five or more units, with terms of up to 35 years under HUD’s MAP Guide and full amortization, so there is no balloon payment.
HUD Mortgagee Letter 2025-03, issued January 8, 2025 and effective immediately, raised the limits. Market-rate properties can now borrow up to 87% of value with a minimum 1.15x DSCR, up from 85% and 1.176x. Affordable properties with a rent advantage over market can reach 90% at 1.11x, the same limits subsidized properties already had.
Section 221(d)(4) covers new construction and substantial rehabilitation, with one loan for the construction period and the permanent term. The same mortgagee letter set its market-rate limit at 87% of cost. It suits developers more than first-time buyers of an existing building.
Bank, bridge and seller financing
Banks and credit unions lend on apartment buildings of every size, and they are often the first stop for smaller or less stable properties that agency lenders will not take. Bank loans often carry shorter terms and personal recourse, which means you sign for the debt yourself. Read that personal liability language before you sign it.
Bridge loans are short-term, usually floating-rate loans for buildings that need work or have high vacancy. They cost more and must be refinanced or repaid within a few years, which adds risk if rates rise or the renovation runs late. Seller financing, where the seller carries part of the price as a note, can fill a gap when a lender’s loan falls short.
SBA loans are not an option for a rental building you will not occupy. SBA rules at 13 CFR 120.110(c) make passive businesses owned by landlords that do not use the property ineligible.
How do you buy an apartment building or complex? Step by step
You buy an apartment building in nine steps, from setting your criteria to taking over management. Most of the risk is decided between signing the letter of intent and the end of due diligence.
- Set your buy box: city, submarket, size, age, condition, price range and how much cash you can commit.
- Talk to lenders early: get rough terms from an agency lender and a local bank so you know the loan size an income level supports.
- Find and screen deals: brokers, off-market owners and listing sites. Ask for the rent roll, a trailing 12-month operating statement (T-12) and the last two years of tax returns or financials.
- Underwrite: rebuild the operating statement yourself with real taxes after sale, current insurance quotes and realistic repairs and vacancy.
- Submit a letter of intent: price, deposit, due diligence period, financing contingency and closing date.
- Sign the purchase and sale agreement: the binding contract, usually drafted by attorneys, with the contingencies spelled out.
- Complete due diligence: financial, physical, legal and environmental checks, covered in the next section.
- Close the loan: appraisal, lender reports, entity documents, insurance and title all have to be in place.
- Take over: transfer utilities, deposits and service contracts, send tenant notices and start management on day one.
Due diligence when buying an apartment building
Due diligence is where you confirm that the income, the building and the title match what the seller told you. Anything you miss here becomes your problem after closing.
Two federal rules apply to most purchases. EPA’s All Appropriate Inquiries rule recognizes a Phase I environmental site assessment under ASTM E1527-21, and completing one before you buy is how a purchaser can qualify for liability protection under the federal Superfund law. For buildings built before 1978, sellers must give buyers a lead hazard pamphlet, disclose known lead-based paint and provide any reports, and buyers get 10 days to inspect for lead unless they waive it in writing.
| Area | What to check | Why it matters |
|---|---|---|
| Rent roll and leases | Read every lease against the rent roll; get signed tenant estoppels | Confirms rents, deposits, concessions and lease end dates |
| Operating history | T-12, bank statements, utility bills, tax bills | Shows whether reported NOI is real |
| Physical condition | Property condition assessment, unit-by-unit walk, roof, boiler, plumbing, electrical, sewer scope | Prices repairs before you own them |
| Environmental | Phase I ESA (ASTM E1527-21); lead, asbestos and radon where relevant | Federal liability protection and lender requirements |
| Title and survey | Title commitment, ALTA survey, easements, liens | Confirms what you own and what encumbers it |
| Zoning and code | Legal unit count, open violations, permits for past work | Unpermitted units can be ordered removed |
| Local rent rules | Rent stabilization, registration, eviction and notice rules | Limits on rent increases change the value |
| Insurance and taxes | Quotes on the new owner’s policy; property tax after reassessment | The two expenses most often underestimated |
Worked purchase budget: a 16-unit building in Chicago
This example shows the full cash needed to buy one hypothetical building. Fees marked as assumed are placeholders for illustration. Get real quotes for your deal.
The building has 16 units at an average rent of $1,500 a month, for $288,000 of gross potential rent. After 5% vacancy ($14,400) and $4,800 of other income, effective gross income is $278,400. Operating expenses are $148,400, so NOI is $130,000. At a $2,000,000 price, the cap rate is 6.5%.
The buyer applies for a Fannie Mae Small Mortgage Loan, which allows up to 80% LTV and requires 1.25x DSCR. At an assumed 6.25% rate and 30-year amortization, an 80% loan of $1,600,000 is out of reach, and even a 75% loan of $1,500,000 would need $110,829 a year in payments, a DSCR of only 1.17x. The largest loan $130,000 of NOI supports at 1.25x is about $1,407,573, so the buyer takes $1,400,000. Payments are $8,620.04 a month, or $103,440 a year, for a DSCR of 1.26x. The income, not the 80% cap, set the loan.
| Item | Amount | Basis |
|---|---|---|
| Down payment | $600,000 | $2,000,000 price minus $1,400,000 loan |
| Chicago real property transfer tax, buyer’s share | $15,000 | $3.75 per $500 of price (City of Chicago) |
| Lender origination fee | $14,000 | Assumed 1% of the loan |
| Appraisal, Phase I ESA and property condition report | $12,000 | Assumed |
| Title, survey, escrow and legal | $25,000 | Assumed |
| Lender escrows and up-front reserves | $30,000 | Assumed; taxes, insurance and replacement reserves |
| Immediate repairs | $60,000 | Assumed, from the condition report |
| Operating reserve | $37,100 | Three months of operating expenses |
| Total cash needed | $793,100 | About 39.7% of the price |
What the budget teaches
The buyer needs $793,100 in cash, not the $400,000 an 80% loan suggests. Two things drove the gap: the DSCR test cut the loan by $200,000, and closing costs, escrows, repairs and reserves added $193,100 on top of the down payment.
After debt service, this building leaves $26,560 a year before any capital spending. That thin margin is common when loan rates sit near or above the cap rate. It is the reason to test a deal with higher expenses, lower rents and a higher rate before you commit, and to keep the reserve in place rather than spend it on upgrades in the first month.
Buying a run-down apartment building
Buying a run-down apartment building can mean a lower price, but it usually rules out agency loans at the start and calls for more cash, more inspection and more time. Fannie Mae and Freddie Mac lend on stabilized properties, so a building with heavy vacancy or failing systems typically needs a bank loan, a bridge loan or all cash until the work is done and occupancy recovers.
Price the renovation from bids, not guesses, and add a contingency for what you find inside the walls. Check for open code violations and unpermitted work with the city, since those can hold up permits and resale. Plan your exit: once the building is repaired and leased, refinancing into a long-term agency or HUD 223(f) loan is the usual way out of short-term debt, and that refinance depends on the new NOI and on interest rates at the time.
Buying an apartment building in Chicago
Buying an apartment building in Chicago adds a city transfer tax, a three-year property tax cycle and a strong local tenant ordinance to the usual steps. The City of Chicago charges a real property transfer tax of $5.25 per $500 of price, with the buyer generally paying $3.75 and the seller the $1.50 CTA portion.
The Cook County Assessor reassesses each third of the county on a three-year cycle, and the City of Chicago was last reassessed in 2024. Underwrite the tax bill a new assessment could produce, not the seller’s current bill. Chicago’s Residential Landlord and Tenant Ordinance governs leases, deposits and notices in most rental buildings, so have a local attorney review leases and deposit records during due diligence.
Taxes and 1031 exchanges for buyers
An apartment building’s structure, but not its land, is depreciated over 27.5 years under IRS Publication 527, and the 2025 tax law made 100% bonus depreciation permanent for qualified property acquired after January 19, 2025, which a cost segregation study can apply to shorter-life parts. If you are buying with proceeds from a sale, a 1031 exchange requires identifying the replacement within 45 days and closing within 180 days of selling the old property.
Apartment building investment without buying one yourself
If you want apartment complex investment without signing the loan or managing the property, you can invest passively through a syndication, a fund or a REIT. Skyline Capital Investments buys apartment buildings with five or more units, and our investor network shares educational material and tells members about opportunities that may fit. Any offering is made only through official offering documents to eligible investors. Most syndications are for accredited investors, and Rule 506(b) and Rule 506(c) offerings follow different rules on advertising and verification.
If you own a building and want to sell, talk to us. We buy directly, close on your timeline, and can work inside 1031 deadlines.
