What changes at five units
The jump from four units to five changes how a lender looks at the building. It moves from a residential-style file to an income-property review in which operating expenses, vacancy and rent-regulated units matter more.
| 2–4 unit DSCR | 5–10 unit DSCR | |
|---|---|---|
| Appraisal | Residential appraisal with rent schedule | Small-balance or commercial appraisal, income approach |
| Income test | Gross rent vs PITIA | Usually net operating income vs debt service |
| Documents | Leases or market rent | Rent roll, leases, operating statements |
| Borrower | Individual or LLC | Usually an LLC |
| NJ example | Newark two-family | Paterson or Elizabeth walk-up |
Net operating income, in plain terms
Net operating income (NOI) is the building's rent minus vacancy and operating expenses: taxes, insurance, water and sewer, common-area utilities, repairs, management and reserves. Principal and interest are not operating expenses; NOI is what is left to pay them. The coverage ratio is NOI divided by annual debt service.
Example with user-style inputs: a six-unit building collects $9,600 a month, or $115,200 a year. Allow for vacancy and expenses of $46,000 a year (taxes, insurance, water, common electric, repairs, management). NOI is $69,200. If annual principal and interest on your quote is $55,000, coverage is $69,200 ÷ $55,000, or about 1.26.
New Jersey buildings tend to carry high taxes and, in older properties, high water and heating costs if the landlord pays them. Expect lenders to scrutinize trailing operating statements.
Rent regulation and five-plus unit buildings
Many New Jersey municipalities apply rent control to buildings above a certain unit count, and the details differ town by town. A lender will underwrite in-place rents and may ask how increases are regulated. Get the municipal rent control ordinance and any registration filings for the building before you commit.
What to have ready
- A current rent roll with unit mix, rents, lease dates and deposits.
- Trailing twelve months of operating statements, plus the prior year if available.
- The current tax bill and any abatement or PILOT agreement.
- Insurance declarations or a quote.
- Entity documents for the borrowing LLC.
- A list of capital improvements made or planned.
Send it through the application and we will match the building to wholesale small-balance programs.
Questions New Jersey investors ask
Can I get a DSCR loan on a five-unit building in New Jersey?
Yes, through small-balance DSCR programs. Expect income-property underwriting using a rent roll and operating statements rather than a residential rent schedule.
Do 5–10 unit DSCR loans require an LLC?
Most programs expect an entity borrower with a personal guarantee, though requirements vary by lender.