Financing an SRO


    I’ve read here on several threads and been told my a selling agent that it can be difficult to finance an SRO. Why is that? Is it because banks don’t know how to handle it? Because there are not enough comparables available for appraisal? Because there is some risk that the C of O wouldn’t be converted? Or all of the above. I am considered purchasing an SRO that will be delivered vacant with a cert of non-harassment at closing.

    13 Replies

    1. well i can assist with your change of occupancy (from class ‘B’ to ‘A’). A letter of no harrasment is only 1 piece to the puzzle of changing your CofO. Oh did anyone ask if you even had an existing C. of O. one in the first place? landlords/ owners do all kinds of slick things over the years, and the city cant bother to catch you. so they sit back and say ‘just pay up when you need to change something. The C of O is where they get you to pay all old fines, fix all illegal conditions, and pass all inspections. but i will take a quick look at your address at no charge if you’d like.

    2. Hamequity is spot on. SRO is a major NO NO for mostly every bank out there. Citi does not do these properties unless they are giving you a 203k FHA loan and they will require the c of o being changed. A SRO is a commercial property in essence and anyone that tells you that you can get a straight residential loan without converting it is either lying or they don’t know what they are talking about.

      Rude Awakening.

    3. Be careful, if all you have is a prepproval, then the lender has not even looked at the loan package. SRO financing is only available from portfolio lenders and doubt in this market citi would do it unless you have close banking relationship, and big accounts. If all you have dealt with is salesmen, prepare yourself for a rude awaking. No secondary market exists for SRO loans


    4. Thanks to everyone for the comments. Citi was willing to lend to me for this property, as if it were a single-family for 20% down at a very reasonable interest rate. It may require some renovations to get to code to undergo the change in C of O to a one family, such as wiring, plumbing, some stair repairs etc, but nothing like moving kitchens/ bathrooms. It just seems strange since everyone says financing for these are so hard to get. I worry that the guy offering the preapproval isn’t factoring something in.

      I did try the smaller local mortgage company noted above (First Meridian) but have not yet received a response from them.

    5. Don’t. Would you buy if you were aware of the risk that the market may fall another 37.5% or more? Think long and hard about historic fundamentals.

      ***Bid half off peak comps***

    6. In my experience, it’s better to go with a smaller or closely-held bank/mortgage company. We didn’t have to put 30% down and didn’t need to put any money in escrow. We had excellent credit though, and a lender that was probably willing to bend some rules (this was 2005). I’d look into local companies, like the mortgage co on the corner of 7th Ave and 9th Street. They get more creative on financing, than, let’s say, Chase.

    7. I did this years ago, same situation, bought with a certification of no harrassment and was required to keep a certain amount in escrow while I did some renovation work (needed to add a couple of baths and a kitchen to make it a 2 family lay out). That was in 2005 though, so financing was easier to get. I put down around 20 to 25% I think, and got a regular residential mortgage. We had great credit, good appraisals and LTV etc. When the bank (Chase) lent the money, they did it based on the value after the renovation was done, which was a few hundred thousand more than the price of the house due to the work that was required. They did not require the full conversion to a 2 family to get the reserve back, just verification that we did the bath and kitchen jobs. We did finally get it all converted and signed off by DOB. Worked out well in the long run, but it is a bit of work.

    8. I would suggest speaking to a mortgage broker that is specialized with fha 203k loans. If you would like any suggestions, please do not hesitate to contact me.

    9. It’s hard to get the loan and you need to have a large down payment (usually 30-40%).

      As said above, if you can get it vacant, there are some options. With FHA’s 203k program, you can buy it, renovate, then change the CoO. With a non-construction loan, you’d have to get the CoO changed before you can close.

    10. If you can get a loan please let me know where as I don’t have any answers for you on this one. You need CASH and lot’s of it. Banks don’t want to lend on properties that have limited marketability.

    11. Because, you do not qualify for any residential mortgage. You must get a non-residential type financing, like a construction loan. Those are really difficult to get right now. Of course, you try, but a lot of the banks that use to offer them no longer do so. And, one of the problems is that when you are finished changing your C of O (also something that takes a lot longer than you think – I am on my 2nd year), you then have to get a conventional mortgage, assuming you qualify under any new rules, etc. For example, if you got a construction loan during the easy money days of yore, you might not qualify for the stricter mortgage rules now. There is inherent risk in this situation, unless you are paying cash and renovating with cash.

    12. Can’t tell you on financing but if you get it vacant with a certificate of no harrasement you should be able to do a conversion from a class “b’ (sro) to a class “a” (standard) apartments