Financing "Unhabitable" Property
My husband and I want very much to buy a multifamily building in bad shape and gut it (he’s an architect). We’ve found several promising properties, but every mortgage broker I’ve spoken with has said that under no circumstances will a lender provide financing for a building that is “unhabitable.” And, if it’s livable but…
My husband and I want very much to buy a multifamily building in bad shape and gut it (he’s an architect). We’ve found several promising properties, but every mortgage broker I’ve spoken with has said that under no circumstances will a lender provide financing for a building that is “unhabitable.” And, if it’s livable but in terrible shape, the appraisal will likely come in way under the sale price. We’re looking in the $700K range, and are able to put down 20-25%, as well as financing the construction to the tune of $180-$200K. Our intention would then be to refinance. But it seems this makes us developers and no one’s giving money to them these days. If anyone has any advice or has dealt with lenders under similar circumstances, I would LOVE your help.
Congratulations, Pierre. Can’t wait for the photos.
Ironballs, what do prices of five or ten years ago have to do with anything? The dangerous reputation of Bushwick is massively overblown. I live in the area near Ridgewood and it’s full of delightful families. I don’t walk around by myself late at night when there’s no one on the streets, but that’s a rule I follow everywhere, not just in Bushwick. Around 10 or 11 on a Friday or Saturday, the streets are teeming and it’s great fun to walk around and get an ice cream or whatever.
Prices are already cheaper than renting. And only going up. This area is going to be massively expensive in a few years. It’s gentrifying rapidly. That’s a reason not to wait.
I’ve got to agree with BHS. The market is still way to high.
350K in Bushwick sounds cheap, but not if you consider how cheap they were five or ten years ago. Your also talking about a neighborhood where your wife (not to mention you and your kids) probably won’t feel safe walking alone at night.
Also, as the higher end market tanks, the lower end will tank as well. When a real estate market tanks, everything goes down, not just one segment.
I’d wait another two years or so for the market to drop another 50%. What’s so bad about renting for a couple more years?
Two constraints with a 203k: the renovation will need to be wrapped into the mortgage, at least the issues that FHA concerns themselves with; and the loan limit is around $729k (at least for single family). So with a $700k property and $200k in repairs, you would have to borrow $700k and contribute your $200k as a down payment (>3% min). But yes then the $900k+ appraisal could be a real problem. What about looking for something similar but that’s closer to a bank’s definition of habitability? There may be places that need extensive work but the water and electricity is currently technically functional and there’s a kitchen and a bath etc. You might be able to find something similar in terms of potential return on improvements but without the habitability issue.
We just went through a similar process on an unihabitable 7 family. We ending up having to go for a “bridge loan” (read loan shark) so that we could get it inhabitable and as soon as we can we plan to refinance. I’m not sure if that will work for you with 20% down (we had a higher %) and it is a higher initial interest rate, but may be worth looking into? If you’d like the contact for the one we used (who I did a lot of research on and we’ve had a good experience with) post here how I can get ahold of you and I’ll be in touch. Good luck either way and don’t listen to the naysayers! 🙂
Nowhere in Brooklyn is there a bottom now, mopar. Nowhere. And you and Pierre are spot off about interest rates. Mortgage rates dropped and the market still tanked because of a tightening in lending standards. Higher rates will complement the downward price pressure already in place. Because of affordability, everybody would have to downgrade their market area to a lower-income nabe. But there’s an income hierarchy that looks like a triangle (a few high earners on top and many low earners on the bottom). There’d be only so many buyers left above to absorb the void in the buyer pool below at each price level, in downward progression. Prices would have to drop to fill these voids. Higher rates will compound the collapse. The rush to buy is pure broker/seller/banker/investor propaganda.
***Bid half off peak comps***
Thanks mopar, we got something in Fort Greene which has always been our favorite neighborhood in all of Brooklyn. Will post photos on the renovation blogg in a couple months. Good night zzzzzz 🙂
BTW your point on interest rates is spot on!
BHO, the fact that interest rates are likely to go up considerably is all the more reason to buy as quickly as possible — assuming the property you’re buying is already “deleveraged.”
Pierre, congratulations. Did you find a place in Clinton Hill?
No, these particular properties I am talking about will not fall further. They are already cheaper than renting. They are selling.
BHO, I think you need to make a distinction between foreclosed “uninhabitable” properties going for less than $100 per square foot in subprime areas, and regular properties in excellent condition in neighborhoods with excellent public schools that are upwards of $500 and often more than $700 a foot.