5+ Units & Small Commercial
The underwrite for multi-unit and commercial deals: gross rents, vacancy, operating expenses, NOI, cap rate, DSCR, and cash-on-cash — the way lenders and buyers evaluate 5+ unit acquisitions and small commercial projects.
Best for
Use it when
Every figure updates as you type — the defaults are typical Indianapolis numbers.
The commercial underwrite
Indianapolis benchmarks
1.20–1.25×
DSCR most commercial lenders require on multifamily
35–45%
Operating expenses as a share of effective gross income (small Indy multifamily)
6–8%
Typical cap rate band for Indianapolis small multifamily
20–25 yrs
Amortization period typical on commercial loans (vs. 30 on residential)
Every number in the tool above comes from these formulas — nothing hidden.
Gross potential rent
GPR = number of units × average rent × 12
The ceiling of income — every unit at market rent for a full year. Add other income (parking, laundry, storage, late fees) to get gross potential income.
Effective gross income
EGI = (GPR + other income) × (1 − vacancy and credit loss)
Vacancy and credit loss — including tenants who stop paying — turns potential into collectible. Small multifamily in Indianapolis commonly underwrites 5–10%.
Net operating income
NOI = EGI − operating expenses
Everything the property spends except debt: management, payroll, turnover, maintenance, reserves, taxes, insurance, and owner-paid utilities.
Debt service coverage ratio
DSCR = NOI ÷ annual debt service (principal + interest)
The lender’s primary safety metric. 1.0× means the property exactly covers its loan; most commercial lenders require 1.20–1.25× or better.
Cap rate
Cap rate = NOI ÷ purchase price
The market’s shorthand for value — and the reason commercial value is built from the rent roll: raise NOI and you raise what the building is worth.
The moment a property crosses to five units, the rules change: financing moves from residential mortgages to commercial loans, and value stops being set by comparable sales and starts being set by income. A commercial building is priced as the capitalized value of its rent roll — which means your underwriting is the valuation, and the lender’s underwriting is the loan.
That shift cuts both ways. Down payments run 20–30%, amortization shortens to 20–25 years, and the property itself must qualify for the loan — not just you. But income improvements translate directly into value: raise NOI $10,000 and, at a 7% cap rate, you’ve created roughly $143,000 of equity. That’s the engine behind value-add commercial investing.
The cascade never changes: GPR (units × rent × 12) plus other income, minus vacancy and credit loss gives EGI; minus operating expenses gives NOI. Every figure a lender quotes you — DSCR, cap rate, loan amount — is downstream of that NOI, so it’s where diligence time pays best.
For small Indianapolis multifamily, operating expenses typically run 35–45% of EGI: management, turnover, maintenance, reserves, taxes, insurance, and any owner-paid utilities. Separately metered buildings run at the low end; buildings with owner-paid water, sewer, and electric run high. A building’s utility metering is a permanent cap-rate decision somebody made decades ago — check it before you write an offer.
Debt service coverage ratio divides NOI by annual debt service. At 1.0× the property exactly covers its loan; below 1.0× it cannot service its own debt at any sane structure. Most commercial lenders want 1.20–1.25× on multifamily — income covering the payment with 20–25% to spare — because that cushion absorbs vacancy, repairs, and the year the boiler quits.
Requirements flex by risk: hotels and other volatile property types often face 1.40–1.50×, while properties with credit-tenant leases — national tenants on long-term triple-net leases — can qualify as low as roughly 1.05×, because that income is about as reliable as commercial income gets.
This is why commercial deals die on structure, not price: the same price and NOI can clear a 25-year amortization at one rate and fail DSCR at another. When the calculator shows under 1.20×, lenders will want more equity, a lower price, or seller financing to bridge the gap.
Don’t expect the lender to use your numbers. If the building’s actual vacancy sits below the market average, most commercial lenders still underwrite to the market vacancy — and if your pro-forma rents outrun the current leases, they underwrite the in-place income instead. The lender’s NOI is often materially below yours, which means a smaller loan than you modeled.
Run this calculator twice: once with your honest numbers, and once as the lender will see them — in-place rents, market vacancy, reserves escrowed. The second run tells you how much equity the deal actually requires at closing.
Most want at least 1.20–1.25× on multifamily — NOI covering debt service with 20–25% cushion. Riskier property types like hotels often face 1.40–1.50×, while credit-tenant triple-net deals can go as low as roughly 1.05×. Below 1.0× the property cannot carry its own loan at any reasonable structure, which is the model telling you the price is wrong, not the loan.
Cap rate is the unlevered return at the purchase price — NOI ÷ price. Yield-on-cost is the same math on your total project cost including renovation. Value-add investors compare the two: yield-on-cost meaningfully above the market cap rate is the profit you created by improving the property.
Yes — 2–4 unit properties are residential for lending purposes, with 30-year terms and lower down payments. Crossing to 5 units means a commercial loan: 20–25-year amortization, 5–10-year terms, DSCR requirements, and rate reset risk. This calculator defaults to the commercial structure, so if you’re buying 4 or fewer units, use the Rental Underwriting Model instead.
Commercial loans carry more income risk than residential mortgages, so lenders shorten amortization to 20–25 years to reduce how long their capital is exposed. The shorter schedule raises the monthly payment — and therefore lowers the loan a given DSCR will support. It’s a structural fact of the asset class, and it’s why 5+ unit deals require more equity than the same NOI would in a residential loan.
You have four levers: more equity at closing, a lower purchase price, a longer amortization if the lender allows it, or seller financing to bridge the gap. A fifth option is honest: the deal doesn’t work at this price, and the model just saved you from finding out after closing. Austin helps investors work these structures with lenders before offers go out.
Expect haircuts: market vacancy applied even if yours is lower, in-place rents used instead of pro-forma rents, and required reserves escrowed before income counts toward coverage. The lender’s NOI is usually below yours — run the model both ways so the loan amount never surprises you at the commitment letter.
Ask for leases, deposit ledgers, and payment history — not just the rent roll summary. Reconcile claimed collections against bank deposits, look for below-market leases that trap your exit, and be suspicious of above-market rents to family or friends. Austin’s commercial due diligence includes verifying actual collections against claimed income before you’re committed.
These calculators are educational tools. Good underwriting still depends on accurate rents, expenses, financing, repairs, vacancy, management, and local market judgment.
Related calculators.
Rental Underwriting Model
The model Austin runs on every long-term buy-and-hold deal. Income, expenses, cash flow, cash-on-cash — all in one view.
Open calculator →
Full IRR Calculator
Multi-year IRR projection with loan payoff and exit proceeds. The one to use when you want the full lifetime return on a deal.
Open calculator →
Cash Flow Model
Monthly income vs. expense projection on a single property. The clearest read on whether a deal pencils month-to-month.
Open calculator →