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Updated · Mike Certo, NMLS #260555

Arizona Multifamily DSCR Loans: 2-4 Unit + Small Commercial

Multifamily investing in Arizona scales beyond single-family. Duplexes, triplexes, and fourplexes use standard residential DSCR. 5-10 unit properties transition to small-balance commercial DSCR. Here's the underwriting reality of Arizona multifamily investor financing.

Multifamily property types and DSCR treatment

2-4 unit residential

Duplexes, triplexes, and fourplexes fall under standard residential DSCR underwriting. The property's combined rental income (from all units) covers PITIA. LLC closings are standard. Down payment typically 20-25%, reserves 3-6 months.

5-10 unit small-balance commercial

Above 4 units, financing transitions to small-balance commercial DSCR. Different underwriting framework — typically lower max LTV (65-75% vs 75-80% on residential), tighter DSCR floor (often 1.20+ vs 1.00 on residential), longer underwriting timeline, and commercial appraisal methodology.

Beyond 10 units

Above 10 units, financing moves to full commercial multifamily. We typically refer those files to commercial lenders specializing in multifamily.

Rent schedule, leases, and appraisal inputs

Multifamily DSCR underwriting analyzes income from all rented units:

  • Existing leases — current rent rolls from in-place tenants
  • Rent schedule appraisal — market rent analysis by the appraiser on vacant units
  • Vacancy assumption — typical 5-10% vacancy haircut applied
  • Operating expenses — utilities, maintenance, property management, capex reserves

The DSCR calculation uses net rental income (after vacancy and expenses) divided by total PITIA. Programs vary in how aggressively they treat expenses.

LLC closings and entity structure

Multifamily investors commonly close in LLCs for liability separation and entity-level portfolio management. Personal guaranty typically required. LLC formation and entity-selection (LLC vs S-corp vs limited partnership) are matters for your attorney and CPA.

Common Arizona multifamily scenarios

  • The Phoenix-area duplex investor: First multifamily acquisition; standard residential DSCR; LLC closing for liability separation
  • The Tucson-area fourplex stabilization: Purchase + rehab + stabilize + DSCR refinance once leases are in place
  • The 8-unit small-commercial investor: Small-balance commercial DSCR with commercial appraisal
  • The portfolio investor scaling 4-plex to 8-plex: Transition from residential DSCR to small-balance commercial as scale grows

When Mike refers commercial

For multifamily files above 10 units, true commercial multifamily, or non-DSCR commercial structures (CMBS, agency multifamily), we typically refer to commercial lenders specializing in those products. We focus on the residential DSCR and small-balance commercial DSCR spectrum where direct-lender execution makes sense.

Next step

20-minute call. Bring target property unit count, target purchase price, rent roll / projected rents, and target LLC structure.

FAQ

What's the DSCR floor for Arizona multifamily?

Residential 2-4 unit DSCR typically follows the same 1.00 floor as single-family DSCR. 5-10 unit small-balance commercial DSCR typically requires 1.20+ for best terms; sub-1.20 programs exist with adjusted terms.

Do I need a commercial appraisal for a 4-plex?

No — 2-4 unit residential uses residential appraisal methodology (sales comparison approach primarily). 5+ units typically requires commercial appraisal with income approach as primary methodology.

Can I do an FHA loan on a 4-plex?

Yes for owner-occupied (you live in one unit). For pure investor 4-plex, DSCR is the typical path. Owner-occupied 4-plex FHA is a separate conversation.

How does Cornerstone handle multifamily portfolios?

We scale from single-family DSCR through 4-unit residential DSCR through 5-10 unit small-balance commercial DSCR. Above 10 units we typically refer commercial specialists.