Small multifamily construction loans fund the missing-middle building: five to nine units on one pad — a stacked walk-up, a small garden, a six-flat that zoning finally allowed. Too many doors for a house loan. Too few for a HUD story. That is the box.
Jaken Finance Group funds qualified investor construction at 8.99%–13.5% interest-only. Leverage is the lower of cost and 75% of as-completed value. Close targets 10–14 business days when plans, title, and the takeout story are already in the file. Stabilized rent exits toward DSCR at 5.75%–10.5% or a community-bank permanent loan.
We also fund 10–20 unit gardens on multifamily construction loans. This guide is for the 5–9 product type — not a hard cap. If the site wants twelve doors, do not delete three units to “fit.” Send the twelve-unit file to the 5–20 desk.
Apply for 5–9 unit vertical: new construction · submit a scenario · (833) 264-7776
What 5–9 actually is
Missing-middle housing sits between a fourplex and a mid-size apartment:
- A new 6-unit stacked flat on an urban lot
- A 8-unit two-story garden with surface parking
- A 9-unit infill where the city granted density
It is not a duplex or fourplex from dirt. It is not a townhome row of fee-simple houses. It is not HUD 221(d)(4). HUD’s 221(d)(4) program is a different lender and a different year.
If the pad is still a scrape, infill lot financing owns the demo. If the dirt is acreage, A&D or land comes first.
Why five doors change the file
| Item | 2–4 construction | 5–9 construction | 10–20 construction |
|---|---|---|---|
| Code / insurance | Residential 2–4 | Often sprinklers, commercial-leaning binder | Garden / small commercial |
| Comps | 2–4 sales and rents | Small MF sales and rents | Garden sales, rent roll |
| Takeout | DSCR 2–4 | DSCR 5–10 or local bank | DSCR 5–10 / 10+ |
| Typical all-in | Under ~$1.2M | ~$1.2M–$3.5M | Higher, still usually under $10M |
| Common fail | SFR comps | Fourplex comps | HUD ambition |
At five units, many cities trip accessibility and fire. At six or eight, lenders stop accepting duplex rent multipliers. Bring small multifamily comps — sold 5–12 unit buildings or documented rents on similar stacked product — not a fourplex two blocks over plus a wish.
Permanent 5–10 unit rental debt on existing buildings lives on 5–10 unit multifamily DSCR. That is takeout after you finish. This loan is the build.
How we size a 5–9 stack
Same two caps as other investor construction:
- Cost. Land or as-is pad, hard cost, reasonable soft cost, 10%–15% contingency, interest and lease-up reserve we can defend.
- Value. 75% of as-completed market value from comps that match unit mix, parking, and finish.
The loan is the lower of those two. “Up to 100% of cost” on qualified files still dies at the value cap when land is dear relative to eight small units.
Draws: site/foundation → structure → MEP → drywall/finish → CO. We do not fund eight appliance packages before the foundation inspection.
Land that is still unentitled is not a 5–9 construction file.
Example: eight-unit stacked walk-up
| Line | Amount |
|---|---|
| Entitled urban pad (owned) | $385,000 |
| Hard cost | $1,420,000 |
| Soft cost (plans, permits, sprinklers engineering, insurance) | $165,000 |
| Contingency (12% hard) | $170,000 |
| Interest + lease-up reserve | $125,000 |
| All-in | ~$2.27M |
| As-completed (8-unit comps, not a cap-rate wish) | $2.70M |
| 75% of as-completed | $2.03M |
| Lower of cost vs value cap | $2.03M binds |
The sponsor asked for 90% of $2.27M — about $2.04M — and treated sprinklers as optional. The city required them. Cost rose $90,000. The cap does not move because the budget did. Takeout test: 8 × $1,575, 6% vacancy, taxes, a real multifamily insurance quote, 30% opex, loan at 70% of $2.70M. If DSCR fails at a rate inside 5.75%–10.5%, do not start vertical.
Interest-only at 8.99%–13.5%. Term 12–18 months plus a lease-up tail.
This is an eight-unit stack. A 16-unit garden belongs on multifamily construction. A new fourplex belongs on 2–4 construction.
Parking, sprinklers, and the unit the city deletes
Five to nine units is where parking ratios start deleting doors. Count spaces on the survey. A fee in lieu belongs in the budget if the city allows it. If they do not, cut a unit or buy more dirt — and that purchase is another file.
Sprinklers, rated corridors, and an elevator nobody wanted at eight units show up in plan review. Put them in the bid. A GC who prices this like a large fourplex will blow contingency before drywall.
Accessibility: some jurisdictions trigger at five units, some at more. Ask the plans examiner. We will not underwrite a bonus door that is still a concept.
Takeout — model it before the pour
Construction interest-only is not the permanent payment.
DSCR. When leased, 5–10 unit DSCR at 5.75%–10.5% can work on qualified files. New 5–9 buildings often take out closer to 70%–75% of stabilized value. Do not assume 85% purchase LTV.
Community bank. Some 6–9 unit buildings exit to a local bank on a trailing rent roll and a guarantee. That is a relationship we do not control. We still want a written path.
Sale to an operator at stabilization is an exit. Sale of a vacant shell is weaker.
Lease-up on eight doors is faster than on twenty and slower than on two. A December delivery still needs concessions in some grids. Reserve it.
If the original lender froze draws on a framed 7-unit, use mid-construction refinance.
What dies in underwriting
- Fourplex or SFR comps for an 8-unit
- Unentitled acreage sold as a six-flat construction loan
- No GC, or a GC who has never delivered multifamily
- No sprinkler, parking, or accessibility answer
- No lease-up reserve
- HUD-sized process on a private close
- Owner-occupy one unit in a 6-flat. We finance investment property only
What “qualified” means on 5–9
A GC who has CO’d a building this size in this city matters more than ten SFR flips. Liquidity for lease-up and a slipped inspection is not optional.
First-time sponsors with sealed plans, a multifamily insurance quote, and 6–12 unit comps can clear. First-time sponsors with a fourplex budget and two extra doors drawn in CAD do not.
Credit is reviewed. Approval rides on cost, as-completed small-MF value, GC, and exit.
Insurance at build and at CO
Course-of-construction is one binder. At CO, a multifamily policy replaces it. Eight-unit liability is not an SFR premium times eight. Get the CO quote before you lock NOI. Files that use house insurance fail when the real binder arrives.
Taxes may reassess at CO as a commercial or multifamily class. Ask the assessor how new 5–9 product is treated. A surprise tax line is a DSCR problem.
GC who has never built eight doors
SFR GCs are not automatically 5–9 GCs. Fire, accessibility, wet stacks, and a multifamily inspection sequence are a different trade list.
We want a bid that names sprinklers, rated corridors, and common electrical. A bid that is “house cost times eight” is a pass until it is rebuilt. If the GC’s last job was a spec SFR, pair them with a superintendent who has CO’d a stacked walk-up, or hire a different GC.
Pay apps should follow a draw schedule we can inspect. Eight kitchens delivered to the curb before foundation is not a draw. It is a materials-storage problem.
Neighbor notices, alley access, and the eighth parking space
Urban 5–9 files live next to people who will call the alder. Some cities require a community meeting. That is days. Put it on the calendar. A dumpster in the alley without a permit is a stop-work, not a personality conflict.
Alley parking that is not legal parking will be removed from the count at plan review. Count only spaces the city will stamp. Tandem spaces that only work if two tenants coordinate are not eight spaces.
If you need a loading zone during construction, price the barricade permit. Interest continues while you argue with streets and sanitation.
Worked takeout — eight doors, conservative rent
Using the eight-unit example above: $2,700,000 as-completed. Takeout at 72% is about $1.94M. At 7.25% and a 30-year amortization, monthly P&I is roughly $13,200 before you add taxes and insurance.
Gross rent 8 × $1,575 = $12,600. That is already under P&I, which means this takeout fails unless rent is higher, leverage is lower, or opex is unusually light. That is the point of modeling before you pour. Construction at 8.99%–13.5% interest-only can look cheap for fourteen months and still strand you.
A file that only works at $1,900 a door in a $1,575 grid is not a construction problem. It is a product problem. Cut finish, cut a door, or bring more cash. Do not ask us to ignore the rent set.
Elevators, trash rooms, and the “small” building that is not small
Eight units over three stories can trip elevator and accessibility rules a two-story garden never sees. An elevator is a six-figure line and a maintenance contract at takeout. If the plans are three stories because the lot is tiny, say so in the first paragraph. We will match comps to stacked product, not to a two-story garden down the street.
A trash room, a bike room, and a package room are not amenities for a magazine. They are square footage that does not rent. If they are required, they are cost. If they are optional, they still need a reason.
Laundry: in-unit versus common. In-unit costs more to build and rents for more. Common laundry is an opex and a vandalism line. Pick one in the drawings. Do not show in-unit in the rent roll and a common room in the plans.
When 5–9 should be 2–4 or 12
If zoning only allows four doors, stop. Use 2–4 construction. If the pad and parking support twelve and the rent comps are gardens, use multifamily construction. Forcing nine doors to “stay missing middle” when twelve is the real building wastes a year.
Existing 6-flats you are buying, not building, belong on multifamily bridge or 5–10 unit DSCR.
Winter, occupancy, and the certificate that is not a lease
A March pour in a freeze-thaw climate is not a twelve-month schedule. Add weather days. A GC who promises CO before Thanksgiving on an August start with no winter enclosure is selling a calendar we will not fund.
Certificate of occupancy on eight doors is not eight leases. College grids, hospital grids, and family grids lease on different months. Delivering empty in November in a student market is a winter of interest. Budget it or change the start date.
If you pre-lease, deposits must be legal in this city. Some places bar occupancy agreements before CO. Do not write those deposits into NOI as if they were rent.
Trash hauling on a small stacked building is often a private contract, not city carts. Price it in opex. A dumpster in a side yard that the city will not allow at CO is a site-plan problem, not a management surprise.
Package to submit
- Pad deed or contract, survey, zoning for unit count
- Plans, specs, sprinkler and parking sheets
- Line-item budget, GC bid, draw schedule
- Small-MF rent comps and a lease-up calendar
- Tax, insurance, and opex for takeout DSCR
- Written takeout path (DSCR, bank, or sale)
Related: new construction loans for investors · multifamily construction 5–20 · multifamily bridge if the building already exists.
For a 5–9 unit vertical, apply at newbuild with sprinkler, parking, and small-MF comps. Twelve doors or more: multifamily construction. Questions: submit a scenario · (833) 264-7776
Small multifamily construction examples are nationwide lending illustrations on investor real estate. Rates, terms, and conditions apply only to qualified borrowers and may change without notice. Jaken Finance Group does not finance owner-occupied housing.