Brooklyn, NY · Member since 2013 · 1 post · 0 votes
Hello-I am first time real estate buyer. I am looking for a mixed-use property. I am self-employed so my tax returns show a lower net income than what would normally be required for the mortgage I'm looking for. I plan on using the commercial space myself and also living in the building. There MAY be 1 or 2 additional apts for rental income.
My thought was that I should start beefing up my tax returns now in preparation for a mortgage in the future. My accountant says no- just save more cash for the down payment.
???
Ok I understand, but I cannot save enough to buy the building in cash. But would a large down payment (50%) make the banks less strict with the numbers?
Also, since I plan on using the commercial space myself and also living in the building, there would not be the full rental incomes the banks normally look at for an investment property. I was told (by a real estate investor) that I need to tell the bank that I am planning on renting all of these units out (and not living there or using them), in order to more easily get the mortgage. Is this realistic?? Or legal?
I'm a real newbie so any advice is really appreciated!!
Real Estate Investor · Member since 2013 · 19 posts · 4 votes
13y
Hi,
I am not an attorney or CPA, so I can't speak much to those issues, but I am an a man of integrity. No amount of money is worth compromising my integrity by not telling the truth.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
13y
I agree with Nate and that's not exactly what I meant in another thread.
Mixed use properties are valued as to space and use on an income approach being the favored approach.
If you are in the BBQ business and you do intend to occupy space then you need to do the deal as owner occupied. If you intend on living there, it's owner occupied (OO) and as OO there are advanatages that the lender considers.
If I had all or even most of my BBQ equipment and was ready to go, knowing I'm going in the business, then go for it and as OO.
OTH, if the BBQ thing is just an idea, a consideration, I didn't have the equipment, in other words, I'm not ready to go as my ducks are not in a row, then I'd keep the situation as it really is, an idea. At the same time if there was a property available and wanted to take advanatge of the time, but not ready to open any store, I'd try to buy on the merits of the day, just buy it and use expected rent levels in my proforma while saying it was to be OO living there.
There is a thin line and you certainly need to inform the bank/lender of what will be going on, if I'm not positive about the business side, I'd probably not want to appear wishy-washy, lenders don't like that stuff, "I might do this or that" that doesn't need to be mentioned;
So, I'd make a decission, do I buy as rental property or as OO?
Clearly, if I had a BBQ as a going business and wanted to move it, it's a slam dunk decision, OO and buy as such.
You have two options and you need to dig deep to the reality of your current position and decide if you are really going to lease that commercial space yourself or lease it out and have the option later on
to move in. Either way, look to the plan that actually fits your current situation, what you can do rather than what you might do and go with what you can do. I'm not implying you conceal your real intentions, I'm saying really go with the plan that works and work that plan.
From a legal aspect, if you buy as a non-owner occupied and later on occupy the property that is not an issue as being OO is less risk, you have the right to do that. But, if you say a property will be OO and immediately lease it out, that is fraud. OO may be a lower interest rate and NOO higher, so not being truthful has an economic aspect that becomes or seen as fraud. If you intend to live there, it's OO.
Point being, don't be wishy-washy about your intentions with a lender, don't mention what you might do, mention what you really will do.