Is this client ready?
By the end, you can tell in one call whether a commercial client is ready, and set the right expectations on time and cost.
- Commercial deals take months, not weeks.
- They cost far more than the down payment.
- So the first call is about time, money and readiness, before any numbers.
Commercial is a different game
No standard application form. No quick approvals. The lender wants a story and proof.
How long it really takes
The fastest one was with an alternative lender. Six months on a CMHC deal only happens when everyone is on their game: lender, broker, client and every report writer.
The mistake new agents make most
Promising an approval in 2 or 3 weeks. It never happens.
A 2-week financing condition on a commercial deal is a no. Say so on the first call.
Money: far more than the deposit
The client pays for reports and fees before the deal closes. Some are due before anyone says yes.
| Cost | From our experience |
|---|---|
| Commercial appraisal | From about $3,000. A rush can cost up to double. |
| Phase 1 environmental | From about $3,000. Needed on almost every deal. |
| Phase 2 environmental | Only if Phase 1 finds a problem. We've never seen one under $10,000. |
| Lender retainer | A few thousand dollars, up to about 1% of the loan. |
| Building inspection | Usually needed. |
| Multi-family reports | Accessibility and energy efficiency reports. |
| Legal fees | Much higher than residential. |
| Lender and broker fees | Vary by lender and broker. |
These figures come from deals we've worked on. They change by area, asset class and provider. Always get quotes.
The deposit-only client
A client with the down payment and not a penny more can't get a commercial deal done.
That's why the personal net worth statement comes first. It shows what they have beyond the deposit.
CMHC's MLI Select program, for example, asks for a net worth of at least 25% of the loan, with a $100,000 minimum.
The first-call screen
Five questions before you open the calculator.
Commercial lenders want decent credit: about 650 and up. Below that, you're mostly looking at alternative or private lenders, and any bad credit needs a really good explanation.
Retainers: tell them on day one
- Lender retainer. When a lender likes the deal, they send a letter of interest or intent (LOI). Signing it usually means paying a retainer. Clients rarely expect this.
- Why lenders charge it. They do a lot of work, and some clients walk away.
- Broker retainer. Many brokers charge one before they start. Some don't. It's your call.
If a client gives you a bad feeling about the paperwork and effort ahead, charge a retainer. We don't usually, and there have been times we wish we had.
For trainers: run this session
5 min Pockets 1 to 3: commercial is a different game, and how long it takes.
5 min Pockets 4 and 5: role-play telling a client about costs.
5 min Pockets 6 and 7: the first-call screen and retainers. Then practice deal 5.
Practice
The numbers: NOI and DSCR
By the end, you can turn a rent roll and an expense list into NOI and DSCR, and know what lenders look for.
- NOI is what the building earns, minus vacancy, expenses and a reserve.
- DSCR is NOI divided by the yearly mortgage payments.
- Conventional lenders look for about 1.20 to 1.25. CMHC can go to 1.10.
Same method as residential
Four questions. Only the numbers change.
- What comes in?Everything the building earns.
- What comes off?Vacancy, operating costs and a reserve.
- Does it qualify?NOI and DSCR against the lender's target.
- What next?Go, Fix, Fringe or Not now.
What comes in
- Rents from every unit.
- Parking, laundry, storage.
- Government-backed solar contracts.
- The owner's own business income, only if the business runs from this property.
A landlord buying to rent out is judged on what the building earns on its own.
Owner-run business income
Lenders look at the business's net operating income over the last two years.
- Usually they average the two years.
- A drop needs a good, true story.
- Strong, believable growth can sometimes earn the latest year.
What comes off
Get the client to list every expense. Then go through the MyMortgageMate expense list with them, line by line.
The ones clients most often miss or understate:
- Management
- Maintenance
- Snow removal
Lenders build in a management fee even when the owner manages the building themselves.
Starting assumptions
Every lender is different. These are safe places to start.
| Item | Start here | Why |
|---|---|---|
| Vacancy | 3% | Residential units usually get 2% to 5%. A long-term commercial tenant with years left on the lease may get none. |
| Management | 5% of income | A real CMHC multi-family file we've worked on used 4.25%. Start higher, then tighten. |
| Replacement reserve | Ask the lender | The calculator starts at $750 per unit per year. Some lenders use about $50 to $60 per appliance per year. |
Under CMHC's MLI Select program, the reserve is set case by case, based on the borrower and the application. CMHC doesn't publish a fixed amount.
The two numbers that matter
A DSCR of 1.00 means the building just covers its mortgage. Lenders want a cushion above that.
Worked example: Maple Court, 8 units
| Gross annual income | $147,840 |
| Vacancy at 3% | −$4,435 |
| Operating expenses | −$45,770 |
| Reserve (8 units x $750) | −$6,000 |
| NOI | $91,635 |
| Yearly payments on a $937,500 loan | $67,041 |
| DSCR | 1.37 |
$91,635 ÷ $67,041 = 1.37. That clears a 1.25 target comfortably.
What lenders look for
| Lender | DSCR |
|---|---|
| Conventional | about 1.20 to 1.25 |
| CMHC MLI Select, standard rental | 1.10 minimum |
| CMHC MLI Select, other shelter types | 1.20 minimum |
| CMHC MLI Select, commercial space | 1.40 minimum |
Lenders don't like submitting a CMHC deal right on 1.10. Leave a cushion.
These are guides, not rules. One lender adds more vacancy. Another uses a higher rate or a shorter amortization. Each of those lowers the DSCR.
For trainers: run this session
5 min Pockets 1 to 3: what comes in, including owner-run business income.
5 min Pockets 4 and 5: expenses and starting assumptions.
10 min Pockets 6 to 8, then practice deals 1 and 3 in the calculator.
Practice
Work the numbers
By the end, you can stress-test a deal, honestly tighten the assumptions, and rescue a fringe deal or call it early.
- Stress every file in the calculator before a lender sees it.
- Three levers you can work: management, vacancy and the reserve.
- Still short? Talk to the lender, then look at alternative lenders.
Stress every file
Commercial has no set stress rate like the residential stress test. Each lender picks its own.
So run the MyMortgageMate stress test table on every deal: the rate up 1%, up 2%, income down 10%, and both together.
If the stress table is all red, tell the client now, not after they've paid for reports.
CMHC's ceiling rate
- CMHC sizes the loan at a ceiling rateIt's set for each deal. The DSCR has to work at that rate.
- The real rate is set on closing dayThe Canada Mortgage Bond rate, plus the lender's spread.
- Above the ceiling? Buy it downThe client pays to bring the rate down to the ceiling or below.
Why a ceiling? If the rate could go higher, the loan would have to shrink.
Three levers you can work
Start conservative. Then ask the lender if they'll accept a tighter number. Never move a lever the lender won't accept.
Rescue a fringe deal
Say the DSCR comes in at 1.15 against a 1.25 target.
- Talk to the lender firstWhere can you save? Expenses, the vacancy allowance, any extra income.
- Look at a bigger down paymentThe calculator shows how much it takes to hit the target.
- Try alternative lendersSome use a total debt service method: all of the borrower's income, but also every debt.
Total debt service can hurt a client with a lot of borrowing. And expect a rate slightly above the banks.
Getting creative, honestly
In the alternative space, a client with a strong net worth and a good portfolio can borrow more on one property, using equity in their other real estate.
With an alternative lender, always have a realistic exit plan: for example, two years of strong financials, then a move to a bank.
If it's on the fringe, tell the client it's on the fringe. Lay out the options before they spend money.
For trainers: run this session
5 min Pockets 1 and 2: stress tests and the CMHC ceiling rate.
10 min Pockets 3 to 5, then practice deal 4 together, lever by lever.
Practice
Lenders, loan size and property types
By the end, you can match a deal to the right kind of lender, and know what each one will lend.
- Conventional: about 75% of value, 25 years.
- CMHC MLI Select: much higher, up to 50 years, if the building earns the points.
- Lenders love multi-family. Some property types are hard work.
The lender ladder
| Lender | Loan size | Amortization |
|---|---|---|
| Conventional | About 75% of value | 25 years. A few go to 30. |
| CMHC MLI Select | Up to 85% or 95%, by points | Up to 40, 45 or 50 years, by points |
| Alternative | Can stretch with equity in other properties | Some go as far as interest only |
| Private | Varies | Short term, higher cost. Nobody wants to live here. |
The MyMortgageMate commercial calculator stops at 75% on purpose. It's a conventional planning guide.
CMHC MLI Select in one minute
- At least 5 units.
- Points for affordability, energy efficiency and accessibility. 50 points is the minimum to qualify.
- Existing buildings: up to 85% at 50 points, 95% at 70 points or more.
- The borrower needs 5 years of experience running similar buildings, or a professional property manager.
- The insurance premium is added to the loan. The application fee is paid by the borrower, usually quickly.
Program figures: CMHC MLI Select. The premium and fee points come from deals we've worked on. CMHC says its information can change at any time, so check CMHC's site before you quote.
Why MLI Select matters: the same building, twice
A fictional 40-unit building with NOI of $502,125, valued at $9,129,545.
| Conventional | MLI Select | |
|---|---|---|
| Loan | $6,847,159 (75%) | $8,673,068 (95%) |
| Rate and amortization | 5.25% · 25 yrs | 4.25% · 50 yrs |
| Yearly payments | $489,641 | $416,212 |
| DSCR | 1.03 | 1.21 |
More loan, yet a better DSCR, because the longer amortization lowers the payments. This assumes the building earns 70 points or more. Example rates only. The CMHC premium isn't included.
See the expense assumptions
| Property tax | $80,000 |
| Insurance | $36,000 |
| Repairs and maintenance ($1,090 per unit) | $43,600 |
| Common area utilities | $30,000 |
| Payroll ($770 per unit) | $30,800 |
| Management (4.25% of effective income) | $32,947 |
| Other (1% of effective income) | $7,752 |
| Appliance reserve ($60 x 5 appliances per unit) | $12,000 |
| Total expenses | $273,099 |
Effective income $775,224 after 3% vacancy. These per-unit figures come from a real CMHC multi-family file we've worked on. They're an example, not CMHC policy.
Property types
In the end it's a numbers game. The whole deal has to make sense.
The environmental warning sign
Has the property ever had, or sat next to, a dry cleaner, gas station, mechanic's garage or rail yard?
Then expect environmental trouble. Warn the client early.
Personal guarantees
On conventional commercial deals, expect a personal guarantee from the owners. Every time, even when a corporation owns the building.
CMHC MLI Select asks for a guarantee too: 40% of the loan on existing buildings.
A deal worth chasing has a strong borrower, a strong property type, a strong DSCR and a good operating plan. With an alternative lender, add a realistic exit plan.
For trainers: run this session
5 min Pockets 1 and 2: the lender ladder and MLI Select.
5 min Pocket 3: walk through the same building, twice.
5 min Pockets 4 to 6: property types, environmental warning signs, guarantees.
Documents and the deal synopsis
By the end, you can build a deal summary a lender wants to read, backed by numbers you've checked yourself.
- Check every number against real paperwork before a lender sees it.
- Tell the story: the plan from start to finish.
- Send it to two or three lenders, not twenty.
Before you send anything
No proof of credit? Take a residential application and pull their credit, with their written consent. Corporate documents can wait until after the LOI.
Need a rent roll or net worth statement? Download our free templates, with the maths built in.
Read every lease yourself
Every lease, the apartments included. Never pass on a number you haven't checked.
- What's the rent?
- How long is left on it?
- Ending soon? Is there a signed renewal, or will the space need a new tenant?
Rent roll doesn't match the leases? Ask the client why, then work from the real numbers.
Ask for old reports
On every file, ask: do you have older appraisals or environmental reports? From when you bought, or in the seller's package?
A clean Phase 1 from a few years back is sometimes accepted. That saves the client money and weeks.
The story: the plan, start to finish
- What are they buying?
- Any improvements planned?
- Will rents go up?
- Alternative lender: what's the exit? For example, build two years of financials, then move to a bank.
- Bank or credit union: how will they keep, and grow, the business?
Put it with the MyMortgageMate Deal Synopsis. Print it from the commercial calculator's Print, Save and Reopen step.
Don't over-shop the deal
Lenders talk. A deal that's been everywhere starts to look unwanted.
- Send to two or three lendersNot the whole market.
- Push for answersBefore you go wider.
- One interested?Don't waste the others' time.
Refinances: a few extra pieces
- Current mortgage statement.
- A new appraisal.
- Bank statements: is the income real, are payments on time, any defaults, is the business struggling?
- Corporate documents.
Many lenders want to know what the money is for. Find out the real purpose and explain it clearly. Never lie. Tell the truth well.
For trainers: run this session
5 min Pockets 1 to 3: the checklist, the lease review and old reports.
5 min Pocket 4: write the story for practice deal 1 together.
5 min Pockets 5 and 6, then practice deal 2.
Practice
From letter of interest to keys
By the end, you can walk a client through every stage, the costs at each one, and the dates to protect.
- Commercial runs backwards: the lender says "interested" first, then checks everything.
- Ask for at least 8 weeks of financing condition, and get the file out in week one.
- Read every retainer and fee clause before the client signs.
The five steps
- Deal synopsisThe numbers plus the story.
- Letter of interestThe LOI, and the lender retainer.
- Deep checksAppraisal, environmental, leases, corporate documents.
- CommitmentThe lender's formal offer.
- ClosingClear the last conditions, instruct the lawyers, close.
Closing usually follows a few weeks after the commitment.
The financing condition
- Ask for at least 8 weeks. More if you can get it.
- Get the file in front of lenders by the end of week one.
- Collect documents from day one. Chasing paperwork alone can eat weeks.
- Negotiate extensions when you need them, especially in a slower market.
Even an LOI in 8 weeks is hard work. You need every number verified first.
The lender retainer
- From a few thousand dollars, up to about 1% of the loan.
- A real example: $220,000 on a $24 million deal.
- If the lender declines the deal, the retainer is usually refunded.
- If the client walks away, they usually lose it, and may owe admin fees too.
Every lender writes these terms differently. Read them with the client before they sign.
Signing the commitment
Most lenders treat their fee as earned once the client signs the commitment. Residential too.
If the client backs out after signing, they'll usually owe the full lender fee. Tell them before they sign.
The appraisal
- Many lenders have an approved appraiser list. Get the client quotes from a few on it.
- About 2 weeks to book, plus 1 to 2 weeks to write.
- Plan on 4 to 6 weeks with the normal back-and-forth.
- A rush job is possible, but it can cost up to double.
Environmental: Phase 1 and Phase 2
Why deals fall apart after the LOI
- Timing
- Unexpected costs
- Nervous first-time commercial buyers
Experienced investors who've paid a retainer and signed an LOI almost always close. With first-timers, spend extra time up front on time and cost.
Time. Prepare the client for the time and the cost from day one.
Check your numbers. Before you go down the road, not after.
Be honest. If it's on the fringe, say so.
For trainers: run this session
5 min Pockets 1 and 2: the five steps and the financing condition.
5 min Pockets 3 and 4: role-play explaining the retainer and the commitment fee.
5 min Pockets 5 to 7: reports, and why deals fall apart.
Practice deals
Run each deal in the commercial calculator, answer the questions, then check the key.
Open the commercial calculator in another tab. Enter each deal exactly as shown.
- Set every expense to AnnualSome rows start on Monthly, like Landscaping & Snow Removal. Remove any row you don't use.
- Set the amortization to 25 yearsThe calculator starts at 30.
- Leave the rest on the defaultsSemi-annual compounding, monthly payments, stress test on at +2.0%.
These are fictional deals. The answer keys use the calculator's own maths, and we've checked every one in the calculator itself, so your screen should match to the dollar.
Cheat sheet
Everything on one screen. Guides, not rules: confirm with the lender every time.
Targets
| Conventional DSCR | 1.20 to 1.25 |
| CMHC MLI Select DSCR (standard rental) | 1.10 |
| Conventional loan size | about 75% |
| Conventional amortization | 25 years |
| MLI Select amortization | up to 50 years |
| Credit | 650 and up |
Starting assumptions
| Vacancy | 3% |
| Management | 5% of income |
| Reserve | Ask the lender |
| Stress test | Run every scenario |
Timelines
| Average deal | 3 to 6 months |
| CMHC multi-family | 6 to 12 months |
| Financing condition | 8 weeks or more |
| Appraisal | 4 to 6 weeks |
| Phase 1 | 4 to 6 weeks |
Costs
| Appraisal | from about $3,000 |
| Phase 1 | from about $3,000 |
| Phase 2 | $10,000 and up |
| Lender retainer | up to about 1% |
First assessment
- Personal net worth statement
- Rent rolls and leases
- Purchase agreement and listing, or mortgage statements
- Proof of credit
- Key dates
The five steps
- Deal synopsis
- Letter of interest and retainer
- Appraisal, environmental, leases, corporate documents
- Commitment
- Conditions, lawyers, closing
Sources
Where the numbers come from.
- CMHC: MLI SelectMinimum debt coverage ratios, loan-to-value and amortization by points, eligibility, the replacement reserve (set case by case), borrower net worth and experience, and guarantees. CMHC says its information can change at any time: check it before you quote.
- CMHC: Standard rental housingCMHC's standard multi-unit rental insurance.
- MyMortgageMate commercial calculatorThe NOI, DSCR, stress test and 75% planning guide used in every practice deal.
- Broker experienceTimelines, costs, retainers, starting assumptions and rules of thumb come from the deals worked by the brokers who built MyMortgageMate. They're guides, not lender policy. Every lender is different.