Financing commercial and multi-unit property

How it differs from a house

A home mortgage is mostly about the borrower’s income. A commercial or multi-unit loan also looks hard at the property: its net operating income, its leases, its condition, and its environmental history. Down payments are commonly larger, terms are often shorter, and lenders may ask for personal guarantees from the owners of a borrowing company. Each lender sets its own terms.

The coverage test

Lenders usually compare the building’s net operating income with the annual loan payments. This is often called the debt service coverage ratio. If the income does not cover the payments with enough room, the loan gets smaller or the down payment gets bigger. Ask the lender what ratio, vacancy, and expense assumptions it will use. Its numbers may differ from the seller’s.

What the lender will ask for

Expect a request for the rent roll, leases, operating statements, an appraisal, and often an environmental site assessment and a building condition report. For a business purchase, expect the business’s financial statements as well. These take time to order and review. Build that into the length of your financing condition.

• Rent roll, leases, and statements
• Appraisal
• Environmental and building reports
• Your own financial statements and net worth

Multi-unit residential and CMHC

CMHC offers mortgage loan insurance for multi-unit rental housing, and its MLI Select product requires a minimum of five units for standard rental projects. Insured loans can carry different terms from conventional loans, along with premiums and conditions of their own. Whether a building qualifies depends on CMHC’s current criteria and the lender. Check both directly.

Buying through a company

Many investors buy commercial property through a corporation. The lender will still look at the people behind it, and may ask for guarantees. Set up the company and its banking early. A buyer name that changes late in the deal can slow the lender, the lawyer, and any Lands Protection Act application.

Renewal and rate risk

Many commercial loans have a term shorter than the amortization. At renewal, the rate, the lender’s appetite, and the building’s income may all be different. Test your cash flow at a higher rate before you buy. If it only works at today’s rate, it has little room.

Checklist

Before you waive financing:

• A lender’s written terms, not a verbal estimate
• The coverage ratio and vacancy the lender used
• Down payment, fees, and any insurance premium
• Appraisal and report requirements, and who orders them
• Personal guarantee requirements
• Term, amortization, prepayment terms, and renewal
• A cash flow test at a higher rate

Worked example: how coverage sizes the loan

Illustrative example only. The figures are made up to show the method. They are not PEI market data or averages.

A building has a net operating income of $60,000 a year. Say a lender wants coverage of 1.25. The most it will let the loan payments be is $60,000 ÷ 1.25 = $48,000 a year. At the lender’s rate and amortization, that payment supports a certain loan amount, and the rest of the price is your down payment.

If the seller’s figures showed $70,000 of NOI but the lender recalculates $60,000, the loan shrinks with it. Ask early how the lender builds its NOI.

Sources

Checked October 2026. Rules change; confirm the current position before you rely on it.

• MLI Select, CMHC (cmhc-schl.gc.ca)
• Mortgage Loan Insurance for Multi-Unit and Rental Housing, CMHC (cmhc-schl.gc.ca)
• Residential Tenancy Act (princeedwardisland.ca)
• Search the Contaminated Site Registry, Gov. of PEI (princeedwardisland.ca)