Resources for mortgage brokers · 3 min read
Plexes: Building Condition in the Loan Analysis
For a plex, the lender looks at rental income. But it's the building's condition that determines how much of that income will pay for repairs rather than the mortgage.
One building, several realities
A plex has often been renovated unit by unit, by successive owners, as tenants left and budgets allowed. The same building can combine a unit redone three years ago with another unchanged for decades. Three generations of wiring and plumbing sometimes coexist in it.
For the mortgage broker, this diversity matters: the return advertised by the seller rests on the building's current condition, not on the work coming. An inspection that visits every unit gives a far more accurate picture. This context is part of our inspection guide for mortgage brokers.
The components that cost the most
A plex's costliest items are well known. The flat roof often comes first: a membrane at the end of its life is a major expense, and a roof that has leaked for a long time may have damaged the deck. Next come balconies, outdoor stairs and guards, masonry, electrical services and water heaters.
These components often age together, which can concentrate several significant expenses in the same decade. The inspection estimates their remaining life, making it possible to build a realistic work schedule. We detail this planning in the capital reserve and returns of a plex.
Recognized income and unauthorized units
The lender analyzes rental income, but only recognizes the income of a building consistent with its authorized use. A unit added in the basement or attic without municipal authorization may not be recognized, or may even have to be closed, which reduces income and changes the loan analysis.
The inspector spots the signs of an unauthorized unit: no second exit, windows too small, insufficient ceiling height, improvised wiring. The official check is done with the municipality. We address this risk in unauthorized units and plex financing.
Tenant safety, the owner's responsibility
A plex owner is responsible for their tenants' safety. The inspection reports missing smoke and carbon monoxide alarms, non-compliant guards, insufficient exits, gas appliances and supplementary heat sources. These findings are priorities because they engage the buyer's liability from the day they take possession.
Several of these items also concern the insurer, without whom there's no loan. A fuse panel or old wiring in one unit can complicate insuring the entire building, as we explain in when insurability blocks the loan.
Turning the inspection into numbers for the file
For a plex, the inspection report becomes a financial tool. By estimating the remaining life of the roof, balconies, windows and mechanical systems, and obtaining quotes for urgent items, the buyer and their mortgage broker can build a realistic reserve into their return calculation.
This approach also lets you present a credible file to the lender: recognized income, planned expenses, priced work. A return that no longer holds once foreseeable work is added wasn't a real return. On the real estate broker's side, see buyer expectations for plexes and older homes.
Investors buying their first plex often focus on the rent roll and treat the inspection as a formality. Showing them how a single roof replacement can absorb a year or two of cash flow is usually the moment the report starts being read with real attention.
Questions to ask the seller of a plex
A few questions to the seller, through the brokers, sharpen the inspection considerably. When were the roof, balconies and outdoor stairs last redone, and by whom? Which units were renovated, and when? Have tenants reported leaks, heating problems or electrical issues in the past two years?
Also ask for the leases, recent utility bills if heating is shared, and any notices from the municipality or the fire department. These documents often confirm what the inspector sees, and occasionally reveal something the building alone wouldn't show, such as a recurring complaint from one unit.
Organizing a plex inspection
A plex inspection requires access to every unit, which means giving tenants notice according to the rules. Allow three to four hours for a triplex, sometimes more. A drain camera inspection is often useful for an older building, and the roof should be examined closely if access is possible.
To send a plex inspection request on a client's behalf, with their consent, see our page for partner brokers. Our consumer article on the checklist for buying a plex can also be passed on to the borrower.
