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January 12, 2009
Financing For Mixed Use Property
I would love any insight into/advice on financing a mixed-use property. While we plan on changing the C of O to a single family, the house is currently a mixed-use with a restaurant on the first floor and two completely gutted apartments on the upper floors. It will be delivered vacant but it is not livable by any standards. We will need a jumbo loan north of a million to buy the property. We are first-time homebuyers with great credit but can put only 10% down. We would also like to finance some of the renovation. (The carrying costs will adhere to the "25% of gross income for housing" rule of thumb, we just aren't sitting on loads of liquid capital.) Is this an impossible dream in the current economic climate? I have started talking directly with our banks but one (Sovereign) won't touch mixed-use. Any ideas appreciated! Thanks!
Comments
I thought you had to put down 25 percent for commercial, but I don't know.
Posted by: mopar at January 10, 2009 11:36 PM
its very unlikely....
Posted by: slick at January 11, 2009 4:19 AM
Talk to a mortgage broker, who has access to products from 2 dozen lenders. I like Norman Calvo at Universal Mortgage. He has offices in Manhattan and Park Slope.
Posted by: bricktop at January 11, 2009 9:18 AM
Even before the october meltdown you could not get loans over $1M without 25-30% down.
Posted by: ownhs at January 11, 2009 3:00 PM
Can't be done. No one will finance mixed-use for less than 25% down. This will probably save you because you are also probably vastly underestimating renovation expenses.
Posted by: hoffster at January 11, 2009 8:56 PM
Call Jay Sullivan at Wells Fargo Home Mortgage in Staten Island. On a non-jumbo loan, it is (was) possible to finance rehab costs on a mixed-use property with less than 25/30% down. But that was a long, long time ago in a mortgage market far, far away.
Posted by: WBer at January 12, 2009 12:18 PM
Thank you bricktop and WBer for the referrals. I will certainly check out these leads. Given everyone's feedback this may be a pipe dream, but I appreciate the advice and would love to really explore all of our options here. We are in LOVE with this house. I think we actually have a very good idea of what is would take to (gut) renovate this property to suit our needs and while we'd be able to cut some of our costs since my husband will be the GC and has all his own crews lined up, we estimate it $200-250 a square foot. We very well may need to sit this one out and save, save, save for a future situation but I'd sure like to try and see if its possible to make it happen : )
Posted by: onefineday at January 12, 2009 1:41 PM
Forgive me for the downer comment, but if you're in love with it, that may be a good sign not to do it. I looked into this a little while ago. A good mortgage broker can help you. My problem with the mixed use issue (aside from the mortgage-related stuff - bigger down payment, higher rates etc.) was the lack of flexibility.
Twice I've had to find new tenants for my 2-fam and it's taken literally days to get great tenants. With commercial space, you could be looking at quite a few months with no income. Granted the rents can be higher, but insurance costs, aforementioned higher mortgage rates and such can eat at that. And in down turns, an empty commercial space can sit for a while.
That being said, the right place at the right price, with the right financing terms, you only live once. Good luck!
Posted by: Johnny at January 12, 2009 5:26 PM
Thanks, Johnny. Relating your experience isn't a downer comment, its simply the reality you dealt with and I appreciate the insight. In this case we are actually planning on changing the C of O to a single family and taking over the whole building for our personal use. I know it can be difficult to increase the occupancy for a building, but I am hoping its easier to go the other way from a mixed use with 2 residential units and a storefront to single family. At 2,000 square feet the building is on the "small" side , but we think it will be just right for our family of four. Of course, this is all moot unless we can get the right financing terms! Have a feeling we will need all the luck we can get.
Posted by: onefineday at January 12, 2009 7:05 PM
hey onefineday -
im kind of in the same predicament - commercial space + 3 family c of o that i wnat to change to a 2 family. wells fargo is one of the only banks i found that could work the situation with their purchase and renovate loan program. don't know all the ends and outs especially based on your million plus price tag but i can get a loan w/ 3.5% down, it's an fha so the maximum loan limits do apply - for a 2 family the limits is $800,775. This amount must include the renovation cost along with property amount so if the owner and i can't see eye to eye on the purchase price - the renovations funds will be next to nothing. Also - they will take out 10-15% for a contingency reserve fund. Hope that helps. And if you hear of any other programs - drop a line.https://www.wellsfargo.com/mortgage/buy/loans/descriptions/renovation
ALso - people keep mentioning scott cohen of wells fargo. he seems to be highly recommended. wish i used him before contacting my wells fargo contact. couldn't switch once my preapproval was in the system.
Posted by: couldashouldawoulda at January 12, 2009 7:21 PM
couldashouldawoulda, thanks so much for the scoop on Wells Fargo and FHA. I think I have also seen recommendations for Scott Cohen- will see what he can do! I will also definitely keep you posted if I come across any other programs. I hope you you can come to an agreement with the seller that fits into the structure of this loan so you can still fix up your new home. Wouldn't you fit into the three family or even 4 family category, since the property is a 3 family +commercial space and won't be a 2 family until after purchase and then changing the C of O? Best of luck!
Posted by: onefineday at January 12, 2009 8:16 PM
thanks for lucky wishes - you can change the c of o to a 1-4 family. I am comfortable finanancially with the payments of the 2 family limits. 3 family would certainly get me the extra $$$ but that monthly nut would kill me. Also not digging the idea of dealing with more than one tenant in my home.
Posted by: couldashouldawoulda at January 12, 2009 8:38 PM
Why on earth would you want to change a commercial mixed use building into a one family??
And similar to others above, my understanding is that for mixed use bldng you need at least 20-30% down.
Posted by: werner at January 12, 2009 10:23 PM
couldashouldawoulda, how far into the 203K loan process are you? We're trying to decide whether to do one or pay cash for renovations. We're scared by all the wierd requirements - like using an FHA approved contractor. Don't know if any will be available, if they will be any good, if they will be honest, if they will be reasonably priced.
Posted by: mopar at January 12, 2009 11:31 PM
couldashouldawoulda, how far into the 203K loan process are you? We're trying to decide whether to do one or pay cash for renovations. We're scared by all the wierd requirements - like using an FHA approved contractor. Don't know if any will be available, if they will be any good, if they will be honest, if they will be reasonably priced.
Posted by: mopar at January 12, 2009 11:31 PM
couldashouldawoulda, how far are you into the 203K process? We have to decide between a construction loan and paying cash (can't really afford either). We're scared by all the wierd requirements of the FHA loan. We don't know if an FHA approved contractor will be available, honest, affordable, good.
Posted by: mopar at January 12, 2009 11:33 PM
@mopar - sorry i didn't check this thread sooner. agree the weird requirements are daunting for the 203k but the house won't qualify for a regular loan - needs major reno now(plumbing, electric, heating, running water - you know all the things that make a house habitable in the banks eyes!) Add to it the fact that even if a bank would loan despite those conditions, the c of o status (3 fam + comm'l) would ensure that i would need to put down 25% or more instead of the 3-5% i was quoted. i am not far in the process at all. Identified property, researched possible loan scenarios, met with other brownstoners that went through the wells fargo purchase renovate process, got pre-approval from Wells, researched lawyers, got a home inspection - shout out to robert albani - great work!, all in preparation for making my offer tomorrow. wish me luck!
the upfront costs, contingency costs, fees, and time limits, etc are the devil in the details for this type of loan but i figure with an interest only loan that I plan to refinance after the reno is complete, we'll be ok. my biggest worry is the contractor aspect.
we can talk off line if you have more questions.
Posted by: couldashouldawoulda at January 14, 2009 9:49 PM
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