Is this property commercial or residential??

Question

New to BP and overall still a newbie when it comes to RE investing. I've had 1 unit for 3 years and now looking to expand.

The deal I'm looking at is a 4-plex and a SFH. For what it's worth, the asking price is 135k and they have separate addresses (709 and 709 1/2) - but they are selling together. Cap rate just over 16%.

My question is, I know normally anything 5 units or larger is considered commercial and will require commercial financing. In this case though, since it's a 4-plex and the 5th unit is separate, would it be eligible for residential financing?

Would I need to speak with someone at the city and see how it is zoned or would that make any difference? Again, I'm totally new to multifamily so if this is a dumb question I apologize in advance, I just but don't want to miss the deal but want to be well informed so I can plan out several exit strategies before jumping in.

Thanks,

Shane

Antoine Martel · Answer

It would be considered a commercial deal. Total amount of units is 5 units. But that price is very low for commercial lending. I think that you could go either way. Most commercial lenders have a price minimum much higher than that price.

Andrew Johnson · Answer

Shane Engelken In most cases you can look up properties on the county assessors website. That should tell you zoning, if there are two distinct parcels, the "improvements" to denote the number of permitted bedrooms/bathrooms. If they don't have online records you could call. I have no idea how hard it would be the split the parcels with an easement/flag lot/etc. I'm guessing it varies between cities but someone else can probably answer it better than me.

Shane Engelken · Answer

Thanks for all the input, everyone!@Andrew Johnson Unfortunately where I live in Oklahoma the records aren't accessible online. I could always swing by there or call though. Thanks!Account Closed I have a local banker who said he would do it at 5.5 - 6%, 15% down, 20-year note, and a private investor who will do 30k at 5% for the down payment and immediate improvements to force some appreciation and higher rent prices. Just looking at all my options. Thanks.

Jessica Zolotorofe · Answer

I should add that zoning in most states won't be commercial for any type of housing. Even 500 unit apartment buildings have their own designation, but it's not commercial.

Jessica Zolotorofe · Answer

You probably need commercial financing, though it's not a big deal. A few extra dollars to close, but certainly not worth losing a good deal over!

Erica Bird · Answer

I agree on calling the Assessor. Also, if the assessor is not online you can also check the Treasurer's page to tell if it's broken into 2 tax parcels because there will be separate tax bills. Even if you can't see all the information online you should be able to see some of it, enough to know if there are 2 accounts. If the property is in Woods county here is the link: http://okcountytreasurers.com/woods/search - side note finding "1/2" addresses can be tricky, I would try searching by both address and the current owner's name to try to find it. This is a link to a site that directs you to any state/counties' clerk, assessor's, and treasurer's pages/info: http://publicrecords.netronline.com/FYI, your title company can find out this information for you as well.So if they are already separated you can do these as residential loans but may have to do 2 separate loans which will double some of your closing costs but potentially get you a lower interest rate. If you're going to live in the units you can qualify for the super low down payment options though, which is a big perk, but on the other loan that is investment property most residential lenders are going to want 20% down.For your current commercial lending offer, here is how it compares to what I've been seeing as the standard lately: although rates have gone up this year I've seen some slightly better rates (usually for customers that have multiple loans or a bigger relationship) but that's not terrible, especially if you don't have other holdings with them. 15% down is pretty good. Getting a 20 year fixed note is harder to find these days, most lenders will amortize over 20 years but will only want to fix the term of the loan for 5-7 years, 10 max. You might want to ask to double check the 20 year you were quoted was the term and not just the amortization. Also look at what your origination fee and bank fees for closing are - 0.5% is the standard right now, less for larger relationship customers and usually higher (1%) at smaller banks or for "one-off" loan transactions.