First-Time Commercial Property Buyer's Guide

Buying your first commercial property is a completely different experience from buying a house or even a residential rental. The rules change. The way lenders evaluate deals changes. The numbers you need to understand change.

But here’s the good news: thousands of Canadian investors have made this transition successfully. It’s not as complicated as it seems once you understand the process. You just need to know what to expect, how to prepare, and where most first-timers make mistakes.

This guide walks you through every step, from shifting your mindset to closing day.

The Residential-to-Commercial Mindset Shift

If you’re coming from residential investing, you need to unlearn a few things.

In residential, the bank looks at you. Your income. Your credit score. Your debt ratios. The property matters, but you matter more.

In commercial, the bank looks at the property first. Can this building generate enough income to cover its debts with room to spare? That’s the primary question. Your personal profile still matters, but the property’s financial performance takes center stage. Understanding the differences between commercial vs residential mortgage financing is essential before making your first commercial purchase.

This is actually good news for investors. It means you can qualify for deals that your personal income alone could never support. A building that generates $200,000 a year in net operating income can carry a much larger mortgage than your T4 slip would allow.

The other big shift: commercial properties are valued on income, not comparables. In residential, your house is worth what similar houses sold for. In commercial, your building is worth what its income justifies. This means you have direct control over your property’s value by increasing rents, reducing expenses, or improving occupancy.

See What You Qualify For

How to Evaluate Your First Commercial Deal

Before you talk to a lender, you need to understand the three numbers that drive every commercial real estate decision.

Net Operating Income (NOI)

NOI is the property’s total income minus its operating expenses, before mortgage payments. This is the number that determines both the property’s value and whether it qualifies for financing.

NOI = Gross Rental Income - Vacancy Allowance - Operating Expenses

Operating expenses include property taxes, insurance, utilities (if landlord-paid), maintenance and repairs, property management fees, and common area costs. They do not include mortgage payments, depreciation, or capital expenditures.

For a quick example: a 6-unit building generating $12,000/month in gross rent ($144,000/year), with 5% vacancy ($7,200) and $45,000 in annual operating expenses, has an NOI of $91,800.

Cap Rate

The Cap Rate Calculation Guide for Investment Decisions tells you the rate of return you’d earn if you bought the property with all cash. It’s also used to determine the property’s market value.

Cap Rate = NOI / Property Value

Or flipped around: Property Value = NOI / Cap Rate

If similar properties in the area are trading at a 6% cap rate and your target property has an NOI of $91,800, the estimated market value is $1,530,000 ($91,800 / 0.06).

Cap rates vary by city, property type, and condition. Lower cap rates (4-5%) mean higher prices and typically indicate lower risk, more desirable areas. Higher cap rates (7-9%) mean lower prices but often come with more risk or management intensity.

DSCR (Debt Service Coverage Ratio)

This is the number your lender cares about most. The DSCR measures whether the property’s income can cover its debt payments with a safety margin.

DSCR = NOI / Annual Debt Service (mortgage payments)

Most commercial lenders want a DSCR of at least 1.20x, meaning the property earns 20% more than needed to cover the mortgage. CMHC-insured programs require as low as 1.1x.

Using our example: if the NOI is $91,800 and annual mortgage payments would be $72,000, the DSCR is 1.275x. That’s healthy, and most lenders would be comfortable with it.

You can run these numbers yourself using our free DSCR calculator for Canadian commercial properties before you even make an offer.

Preparing Your Finances

Commercial lenders evaluate both the property and the borrower. Here’s what you need to have in order before you start shopping.

Down Payment

Expect to put down 20% to 35% of the purchase price on a conventional commercial mortgage. The exact amount depends on the lender, property type, and your experience level.

The exception is CMHC-insured multi-family financing, where down payments can go as low as 5% to 15%. But CMHC only applies to residential rental buildings with 5 or more units, not office, retail, or industrial properties.

For a $1.5M property with a 25% down payment, you’re looking at $375,000 in equity. That’s a significant amount of capital. Many first-time commercial buyers access this through a combination of savings, equity from existing properties, and sometimes joint venture partners.

Cash Reserves

Lenders want to see that you can handle unexpected costs. Most require you to show liquid reserves equal to 6 to 12 months of mortgage payments after closing. They don’t want to fund a deal where you’re stretching every dollar just to close. Vacancy happens. Repairs come up. You need a cushion.

Net Worth Statement

Commercial lenders will ask for a personal net worth statement listing all your assets and liabilities. This includes real estate holdings, investment accounts, vehicles, RRSPs, and all debts. They want to see that your net worth is strong relative to the loan you’re requesting.

A general rule of thumb: your net worth should be at least equal to the loan amount you’re seeking. If you’re borrowing $1.1M, having a net worth of $1.1M or more gives lenders confidence.

Income Documentation

Even though the property’s income drives the deal, lenders still verify your personal income. You’ll need:

• 2 years of personal tax returns (T1 General)
• 2 years of Notice of Assessment
• Recent pay stubs or proof of business income
• If self-employed: 2 years of financial statements for your business

Self-employed borrowers may face more scrutiny, but commercial lenders are generally more flexible than residential lenders on this point since the property’s income is the primary qualifier.

Finding the Right Property Type for Beginners

Not all commercial properties are created equal for first-time buyers. Here’s how the main types compare.

Why Multi-Family Is the Most Common First Step

The 5-to-8-unit apartment building is far and away the most popular first commercial property, and for good reason.

You already understand housing. You know what tenants want in an apartment. You know how to evaluate rent levels. The tenant dynamics are familiar even though the financing is commercial.

Multi-family buildings also qualify for the best financing programs. CMHC-insured loans on multi-family properties offer terms that other commercial asset classes can’t match — lower rates, higher leverage, and longer amortization.

Demand for rental housing in Canada is strong and growing. Vacancy rates in most Canadian cities are tight, which means your income stream is relatively secure. And because commercial properties are valued on income, improving the building directly increases its value.

Start with a 5- or 6-plex. Learn the commercial financing process with our complete guide on how to finance your first multifamily building. Understand how commercial property management works. Then scale from there.

Use our free CMHC MLI Max Loan Calculator to estimate maximum CMHC insured financing for multifamily properties before you start shopping.

Explore Your Multi-Family Financing Options

The Commercial Mortgage Application Process: Step by Step

Step 1: Get Pre-Qualified

Before you start looking at properties, talk to a commercial mortgage broker. They’ll review your financial situation and tell you what you can realistically qualify for on a commercial mortgage. This prevents you from wasting time on properties that won’t get financed.

Pre-qualification for commercial mortgages involves more than just pulling your credit. Your broker will review your net worth, income, experience level, and the type of property you’re targeting to determine which lenders are the best fit.

Step 2: Find and Analyze Properties

With your pre-qualification in hand, start evaluating properties. For every deal, run the NOI, cap rate, and DSCR calculations. If the numbers work on paper, dig deeper.

Request the seller’s financial package: rent rolls, operating expense statements, tax bills, utility costs, and any management agreements. Verify everything independently. Sellers sometimes present optimistic numbers — your job is to confirm them.

Step 3: Make an Offer with Conditions

Commercial offers typically include conditions for financing, inspection, environmental assessment, and document review. Your conditional period is usually 30 to 60 days, longer than residential, which gives you time to complete due diligence.

Step 4: Complete Due Diligence

This is the critical stage where you verify everything about the property.

Property inspection: Hire a commercial building inspector who specializes in multi-family or your specific property type. They’ll assess the roof, structure, mechanical systems, plumbing, electrical, and building envelope. Commercial inspection reports are more detailed than residential ones and typically cost $3,000 to $10,000 depending on building size.

Environmental assessment: Most commercial lenders require a Phase I Environmental Site Assessment (ESA). This investigates the property’s history for potential contamination. If the Phase I flags concerns, a Phase II assessment with soil and groundwater testing may be required. Budget $3,000 to $5,000 for a Phase I.

Appraisal: Your lender will order a commercial appraisal to confirm the property’s value. Commercial appraisals use the income approach (based on NOI and cap rates), the cost approach, and sometimes the sales comparison approach. They take 2 to 4 weeks and cost $3,000 to $7,000.

Lease and tenant review: Review every lease in detail. Check expiration dates, renewal terms, rent escalation clauses, and any special provisions. Interview tenants if possible. A building is only as valuable as its income stream, and that income stream is only as reliable as its leases and tenants.

Financial verification: Cross-reference the seller’s income and expense figures against actual bank statements, tax returns, and utility bills. It’s common to find discrepancies.

Step 5: Secure Financing

Once due diligence confirms the deal, your broker submits the formal mortgage application. This includes the appraisal, environmental report, your financials, and the property’s financials.

The lender’s underwriting team reviews everything, asks follow-up questions, and issues a commitment letter outlining the approved terms. Review this commitment letter carefully with your lawyer before signing.

Step 6: Close the Deal

Your lawyer handles the legal work: title search, title insurance, registration of the mortgage, and the actual fund transfer. Commercial closings involve more documentation than residential, so budget extra time and expect legal fees of $3,000 to $8,000.

Common First-Timer Mistakes and How to Avoid Them

Mistake 1: Trusting the seller’s financials without verification. Sellers present the best possible picture. Always verify income and expenses independently. Request actual bank deposits, not just rent rolls. Check tax assessments against claimed property taxes. Verify utility costs with utility companies.

Mistake 2: Underestimating operating expenses. New commercial investors often use the seller’s expense figures, which may be understated. Common areas where expenses get lowballed: management costs (budget 5-8% even if you self-manage), maintenance reserves (budget 5-10% of gross income), and vacancy (budget 3-5% minimum, even in tight markets).

Mistake 3: Skipping the environmental assessment. A Phase I ESA costs $3,000 to $5,000. Environmental remediation can cost $50,000 to $500,000. This is not the place to save money. Your lender will require it anyway, but even if they didn’t, do it.

Mistake 4: Going directly to one bank instead of using a broker. Your bank sees one set of products. A commercial mortgage broker sees the entire market. On a deal this size, the difference between a 5.0% and 4.5% rate over a 5-year term can save you tens of thousands of dollars. There’s a reason experienced investors rely on brokers instead of going direct to one institution.

Mistake 5: Not building a team before you need one. By the time you find a deal, it’s too late to start assembling your team. Build your network of professionals before you start looking at properties. You’ll move faster and make better decisions.

Mistake 6: Buying a property that doesn’t cash flow from day one. Unlike residential where you might accept break-even and wait for appreciation, your first commercial property should produce positive cash flow immediately. Lenders require it, and so should you. Speculative appreciation plays are for experienced investors with deep reserves.

Building Your Commercial Team

You need five professionals on your team before you buy your first commercial property. Not after. Before.

Commercial mortgage broker. This is arguably the most important relationship. A broker who specializes in commercial deals has access to dozens of lenders and knows which ones fit your deal. They’ll structure the deal, package the application, and negotiate terms on your behalf. Choose someone who has closed multiple commercial deals in the past year.

Real estate lawyer. You need a lawyer experienced in commercial real estate transactions, not a residential conveyancer who occasionally handles commercial. Commercial deals involve more complex documents, environmental considerations, and entity structuring. Budget $3,000 to $8,000 in legal fees.

Accountant. A CPA with real estate experience helps you structure the purchase tax-efficiently, advises on whether to hold in a corporation or personally, and ensures your ongoing tax reporting is optimized. This decision should be made before closing, not after.

Commercial building inspector. Not a home inspector who can also do commercial. You want someone with specific experience inspecting multi-family or commercial buildings. They understand commercial-grade HVAC systems, fire suppression requirements, elevator equipment, and building code compliance for commercial occupancy.

Property manager. Even if you plan to self-manage initially, interview property management companies before you close. Know what professional management costs (typically 5-8% of gross rents for multi-family) and what services they provide. If something goes wrong or you realize self-management isn’t sustainable, you want to be able to bring in a manager immediately rather than scrambling to find one.

Your Timeline: From Decision to Closing

Here’s a realistic timeline for a first-time commercial property purchase:

Total realistic timeline from “I want to buy commercial” to “I own a commercial building” is typically 6 to 18 months for a first-time buyer. Don’t rush it. The preparation phase is where most of the value is created.

Start Your Commercial Buying Journey

Frequently Asked Questions

The Bottom Line

Your first commercial property purchase will feel overwhelming at times. There are more numbers to understand, more professionals to coordinate, more due diligence to complete, and a longer timeline than you’re used to.

But once you close that first deal and see the income flowing, you’ll understand why experienced investors build the majority of their wealth in commercial real estate. The financing is more flexible. The income is more predictable. And your ability to control value through operations gives you an edge that residential investing simply doesn’t offer.

Start with the preparation. Build your team. Learn the numbers. Find the right property type for your experience level. And work with a commercial mortgage broker who can guide you through the financing process from start to finish.

That first deal is the hardest. Every deal after that gets easier.

Written by

LendCity

Published

February 8, 2026

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13 min read

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Commercial Properties Getting Started Mortgage Basics Investment Strategy Mortgage Qualification

Key Terms in This Article

Commercial Mortgage

Commercial Mortgage

Financing for commercial properties like retail, office, or multifamily buildings with 5+ units, with different qualification criteria than residential mortgages.

DSCR

DSCR

Debt Service Coverage Ratio - a metric that compares a property's net operating income to its mortgage payments. A DSCR of 1.25 means the property generates 25% more income than needed to cover the debt. Lenders typically require a minimum DSCR of 1.0 to 1.25 for investment property loans.

NOI

NOI

Net Operating Income - the total income a property generates minus all operating expenses, but before mortgage payments and income taxes. Calculated as gross rental income minus vacancies, property taxes, insurance, maintenance, and property management fees.

Down Payment

Down Payment

The upfront cash payment when purchasing a property. For 1-4 unit investment properties, minimum 20% down is required. 5+ unit multifamily can use CMHC MLI Select with lower down payments, and house hackers can put as little as 5% down on owner-occupied 2-4 plexes.

Due Diligence

Due Diligence

The comprehensive investigation and analysis of a property before purchase, including financial review, physical inspection, title search, and market analysis.

Appraisal

Appraisal

A professional assessment of a property's market value, required by lenders to ensure the property is worth the loan amount.

Environmental Assessment

Environmental Assessment

A professional evaluation of a property's environmental condition, typically required by commercial lenders. Phase I reviews historical records for contamination risk. Phase II involves soil and water testing. Essential for commercial and industrial property purchases.

Commercial Lending

Commercial Lending

Financing for commercial real estate or business purposes, typically qualified based on property income (NOI) rather than personal income. Includes mortgages for multifamily buildings (5+ units), retail, office, and industrial properties.

LTV

LTV

Loan-to-Value ratio - the mortgage amount expressed as a percentage of the property's appraised value or purchase price (whichever is lower). An 80% LTV means you're borrowing 80% and putting 20% down. Lower LTV generally means better rates and terms.

Cap Rate

Cap Rate

Capitalization Rate - the ratio of a property's net operating income (NOI) to its current market value or purchase price. A 6% cap rate means the property generates $60,000 NOI annually on a $1,000,000 value. Used to compare investment properties regardless of financing.

Hover over terms to see definitions, or visit our glossary for the full list.

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