BANK LOANS

Bank loan or 30 year loan: which one fits a 10 to 50 unit building.

The two most common ways to finance a stabilized apartment building are built for different owners. One is cheaper. One is simpler. Neither is right for everyone, and the choice usually comes down to three questions.

By CapituroSeptember 30, 20267 min read

Apartments in Vista Grove, Georgia

In short

Our bank-style full-doc lane is usually a 5 year fixed on a 20 to 25 year amortization, with a personal guaranty and often a deposit relationship. Rate is lower. Paperwork is heavier.
Our 30 year DSCR lane is fixed for the life of the loan, skips tax returns, goes to 75% on a refinance, and carries a higher rate and a step-down prepayment penalty.
Pick by holding period, by what your tax returns show, and by whether a 5 year reset is a risk you want.

What each one actually is

The bank-style full-doc loan. Underwriting looks at you and the building. Typical structure on a Georgia apartment building: 5 year fixed rate, 20 or 25 year amortization, full recourse with a personal guaranty, and a deposit relationship, which means moving operating accounts to the bank or holding a set balance there. Prepayment ranges from none to a 5-4-3-2-1 step-down depending on the bank. Some offer a 5+5, where the rate resets once at year five and the loan runs another five years. Underwriting uses your tax returns, with depreciation added back, and a global cash flow across everything you own.

The 30 year DSCR loan. Underwriting sizes the loan on the building's rent roll and NOI, up to 75% on a refinance. 30 year fixed or a hybrid (5, 7, or 10 years fixed then adjustable), 30 year amortization, sometimes with an interest-only period. No tax returns. Coverage requirements are often lower than a bank's on smaller loans. Rate is higher, and there is almost always a step-down prepayment penalty, 5-4-3-2-1 being standard.

Question one: how long are you holding?

This is the biggest one.

If you plan to hold the building ten years or more, the 5 year bank term is a refinance you have already scheduled. In year five you go back to the market, at whatever rates are then, with a new appraisal, new fees, and a fresh underwriting. Owners who were doing this in 2021 and are doing it again now understand what that risk feels like.

The 30 year loan removes that. The payment you have in year one is the payment you have in year twenty-five. The cost is a higher rate for the whole hold. On a $2 million loan, a one point rate difference is roughly $1,300 a month.

If you plan to sell or refinance within five years, the bank loan's short term is not a problem, and its lower rate is money in your pocket every month until then. Just check the prepayment schedule so the exit is clean.

Next step

Tell us the building and how long you plan to hold, and we will run both lanes side by side.

Run both lanes

Question two: what do your returns look like?

Full-doc underwriting is going to read two years of returns and a personal financial statement. If the building shows a paper loss from depreciation, that is fine; the bank adds it back. If the building shows a real operating loss, or your global cash flow is thin because of other properties or a business that had a bad year, the bank loan gets hard.

The investor loan does not ask. The rent roll and the NOI are the underwriting. Owners with complicated returns, recent cost segregation studies they do not want to explain, or a portfolio that is stretched elsewhere often find that the 30 year loan is the one that closes, and the higher rate is the price of that. We tell you which one it is before you pick.

Question three: do you want the relationship?

Banks want deposits. On a Georgia apartment loan, that usually means the building's operating account moves to the bank, and sometimes a compensating balance sits there. For an owner with one building and one bank, that is a Tuesday afternoon. For an owner with six buildings across three banks, each one asking for the accounts, it is a genuine cost.

The relationship also cuts the other way. A bank that holds your deposits and knows your buildings will often work with you on the next one, on an extension, or on a problem, in a way a national program cannot. We keep those relationships for exactly that reason. That has value, and it is hard to put a number on.

Where the loan is too small

Many apartment lenders, agency and investor alike, start at $1 million, and some start at $2 million. A 12 unit building in Warner Robins with a $700,000 loan is below most of them. That building usually ends up with a local bank or with the smaller-balance investor programs, and the choice is between those two, not among everything.

The worked example: two buildings, one owner

The buildings. An 11 unit in Warner Robins owned free and clear with a clean operating history, and a 10 unit in Macon bought a year earlier with seller financing, renovated, and leased up that spring.

The bank-style read. We ran both through several of our Middle Georgia bank relationships. Their terms came in at a 5 year fixed on a 25 year amortization, a step-down prepayment schedule, and a requirement to move the operating accounts. They read Warner Robins as the stronger property and Macon as the harder market, and priced accordingly.

What the owner wanted. A 30 year payment. He did not want to be back in the market in 2031.

Where it went. Our 30 year DSCR lane, with each building sized separately on its own rent. The rate was higher than the bank's. The amortization was longer, so the monthly payment was close. And the two loans were independent, so he could sell or refinance one without touching the other.

What it means. The banks were not wrong and the owner was not wrong. They wanted different things. The banks wanted a five year relationship. The owner wanted a thirty year payment. We had both lanes, so the answer to question one picked the loan.

Figures are rounded and the properties are not identified. Terms vary by lender and change without notice.

Next step

Not sure which lane? Send the rent roll and the last two years of returns. We will show you both terms on your building, not a generic grid.

Show me both

A quick way to decide

If this is you	Lean toward
Holding 10+ years, want one payment for the life of the loan	30 year investor loan
Selling or refinancing inside 5 years, want the lowest rate	Bank
Returns are clean and global cash flow is strong	Bank
Returns are complicated or the portfolio is stretched	30 year investor loan
Loan under $1 million	Bank-style or our small-balance DSCR lane
Want non-recourse	Our agency lane, which starts higher
Would value a lender that knows your buildings	Bank

A one point rate difference sounds like the whole decision. Over a ten year hold, the five year reset, the prepayment schedule, and the deposit relationship each matter as much.

Questions

Frequently asked

Is bank-style always cheaper than DSCR on an apartment building?+

Usually on rate, yes. But it carries a 5 year term, a personal guaranty, and often a deposit relationship. The all-in comparison depends on how long you hold and what happens at the reset, and we run it both ways before recommending either.

Can I get a 30 year fixed apartment loan from a bank?+

Rarely. Most banks and credit unions hold apartment loans on their balance sheet and price them on a 5 year fixed. Thirty year fixed apartment loans come from investor programs and, at larger sizes, from agency lenders.

What is a deposit relationship?+

The bank asks you to move the building's operating account to the bank, and sometimes to keep a minimum balance there. It is common on Georgia bank apartment loans and is part of how the bank prices the loan.

What happens at the end of a 5 year bank term?+

The loan either resets to a new rate for another term (on a 5+5) or matures and must be paid off or refinanced. Either way you are back in the market at year five, so the plan for that should exist at year one.

Run the numbers