Multifamily Value-Add: Bridge to 75% LTC, Then Refinance into DSCR

You buy a 12-unit at $1.8M with deferred maintenance and 60% occupancy. Eighteen months later it’s stabilized at 92% occupancy with $18,500 monthly rent. That spread—underperforming at purchase, performing after repositioning—is the value-add model, and it runs on two loans in sequence: a bridge loan at acquisition, then a DSCR refinance once the property throws consistent cash flow.

The question is whether the arithmetic closes—whether the cash you pull out at refinance covers what you put in during the hold. Here’s the structure, with real numbers.

The Bridge Loan at Acquisition

Multifamily bridge loans typically go to 75% LTC (loan-to-cost) or 65% ARV (after-repair value), whichever is lower. LTC includes the purchase price plus verified renovation costs. On a value-add deal, you’re often constrained by the 65% ARV because you’re buying below stabilized value.

Example property: 12 units, $1.8M purchase, $240,000 renovation budget (new HVAC in 8 units, facade work, common-area upgrade, unit turns). Total cost basis: $2.04M. Stabilized ARV appraised at $2.65M.

• 75% LTC = $1,530,000
• 65% ARV = $1,722,500

The loan funds at the lower figure: $1.53M. You bring $510,000 to closing (the $1.8M purchase minus the $1.53M loan), plus another $240,000 for the renovation as draws release. Total out-of-pocket during the bridge hold: $750,000.

Indicative terms on a deal of this size with an experienced sponsor: 670 minimum FICO, rate from 10.75%, 2 points, 18-month term with one 6-month extension option at 0.5 points. Interest reserves are typically held by the lender and drawn monthly, adding roughly $14,000 per month to the loan balance at that rate.

The Stabilization Period

The repositioning window is what you’re financing with the bridge. Tenants are replaced or renewed at market rents, units are turned, and occupancy climbs from 60% to the low-90s. The trailing twelve-month rent history shifts from underperforming to bankable.

This phase has a real carrying cost that compounds. If renovation takes nine months and lease-up takes another four, you’re thirteen months into an eighteen-month loan before the property qualifies for DSCR refinancing. Each month of interest reserve draw increases the payoff figure and reduces the equity you extract at refinance.

The 670 FICO minimum for multifamily bridge is higher than the 650 floor on smaller deals because lenders price the lease-up risk into the credit gate. A five-plus-unit property with ten vacant units and no cash flow is not the same underwriting call as a stabilized duplex.

The DSCR Refinance

DSCR loans on stabilized multifamily (five-plus units) go to 75% LTV with a 700 minimum FICO and a loan range of $400,000 to $2 million. DSCR is calculated on the trailing rent and a lender-estimated expense ratio—call it 1.15x to 1.25x on a performing asset.

Once your 12-unit is throwing $18,500 per month ($222,000 annualized) at 92% occupancy for six consecutive months, you can refinance. The appraised value on a stabilized income property is driven by the rent, so if the property now appraises at $2.65M and you’re taking out a new loan at 75% LTV, the refinance proceeds are $1,987,500.

Your bridge payoff after thirteen months, including accrued interest reserve draws, is roughly $1.71M. The delta—$1,987,500 minus $1,710,000—is $277,500 in cash returned to you at the refinance closing.

Compare that to your total out-of-pocket during the bridge period: $750,000. You’re still $472,500 into the deal in unreturned equity, but the property is now fully stabilized, covered by long-term financing at a lower rate (DSCR rates from 6.25% versus bridge rates from 10.75%), and producing monthly cash flow after debt service.

The Equity You Never Get Back

That $472,500 gap is permanent until you sell or the property appreciates enough to support another cash-out refinance years later. It is not a loss—you own a stabilized asset producing income—but it is also not liquidity. If you expected to pull all your money out at the DSCR refinance, the arithmetic does not support that on a deal of this leverage.

The path to full cash-out would require either buying at a steeper discount, spending less on renovation, or waiting for market appreciation to lift the appraised value above $3M so a future 75% LTV refinance exceeds $2.25M. On a value-add hold, appreciation is a possibility but not a guarantee within the investment horizon.

When This Sequence Is the Wrong Call

This structure does not fit every multifamily deal, and forcing it into the wrong situation costs you months and money.

If you cannot bring $750,000 in cash and hold it through thirteen months of repositioning, this deal does not work at this size. A bridge loan is not gap funding—it requires substantial equity at closing and through the renovation period. If your capital is constrained, a smaller property or a joint-venture equity partner is the adjustment, not a search for higher leverage.

If lease-up or renovation runs long, you are into the extension period and paying another half-point plus higher monthly interest on a growing balance. Extensions exist for a reason, but they are not free. A deal where permitting delays push renovation from nine months to fourteen can blow through a six-month extension and leave you scrambling for a costly second extension or a forced sale.

If your market has soft multifamily fundamentals—high vacancy, declining rents, or oversupply from new construction—the refinance appraisal will not hit the figure you modeled at acquisition. The DSCR refinance is a real underwriting event with a new appraisal. If your trailing rent is $18,500 but comparable five-plus-unit properties in the submarket are sitting at 80% occupancy, your appraised value compresses and the 75% LTV refinance proceeds fall short of the bridge payoff.

And if you are new to multifamily, lenders price that into the bridge terms or decline the file outright. The 670 FICO minimum is a credit floor, but underwriting also weighs your track record. A sponsor with no previous multifamily repositioning may see higher reserves required, a lower LTC, or a declination in favor of someone with three comparable exits.

Why the Model Still Works

Even with $472,500 left in the deal, you now own a cash-flowing asset financed at a sustainable rate. If the stabilized property produces $3,800 per month after DSCR debt service, that is $45,600 annualized on $472,500 of unreturned equity—a 9.6% cash-on-cash return, plus the mortgage paydown and any future appreciation.

The alternative—trying to finance a value-add acquisition with a single long-term loan—does not exist at these leverage levels. DSCR lenders will not fund a 60%-occupied property with ten vacant units. You would be forced into a lower-leverage conventional mortgage or all-cash, which either leaves opportunity on the table or requires capital you may not have.

The two-loan sequence is the tool that makes undermanaged multifamily acquisitions financially viable for investors without institutional equity. It is not a path to infinite leverage or zero money left in the deal, but it is the structure that closes the gap between what a property is worth today and what it will be worth stabilized.

Before you run this play, model the full cash waterfall—including interest reserve draws, extension costs if repositioning runs long, and a sensitivity case on the refinance appraisal. The arithmetic either works or it does not, and finding out at month thirteen is twelve months too late.

If the numbers close and you can carry the equity through stabilization, the bridge-to-DSCR sequence is the standard method for multifamily value-add deals in the $1.5M to $5M range. Just know what you are signing up for: two closings, two appraisals, two sets of fees, and thirteen months of execution risk between the purchase and the cash-out refinance.

For current multifamily bridge and DSCR program details, see our multifamily financing page and indicative rate sheet.