BRRR, 2 houses 1 lot? Refi issues?

Question

Hello!  As I'm searching for my next deal in Cleveland, OH, I've come across a couple where there are two separate houses on the same lot.

Whatever I end up with, I would like to BRRR, both I've seen would qualify.  The question I have though, is does anyone foresee problems getting your money back out of that style property?  I had a conventional lender once tell me those are always difficult to lend on for them, and wondered if that was the same across the board for most lenders.  Will I have trouble refinancing something like that?  Or should it be pretty cut and dry?

Any input or a link to some good lenders that could help would be much appreciated!

Victor Vella · Answer

@Daniel Parrella

I’ve come across a few of them and my understanding is you need a commercial lender.

Remember you also will need to exit the property at some point meaning someone needs to buy the house.... meaning you’ll either need to wait for a cash buyer or most of your buyers will have trouble financing. The buyer pool becomes much smaller if financing is an issue and my understanding is it is.

Timothy Hero · Answer

Commercial lenders can fund on these. It's a "single asset with an ADU". Depending on how it's zoned and if the appraiser has similar comps in the area, is how they'll view it.

If there's another property with an ADU in the area, the appraiser can comp it to that if it recently sold. This will increase the rent collected on it.

If not, the appraiser will view it as a SFH and nothing more, therefore, private lenders (commercial lenders), will only look at the cash flow from the SFH and not the ADU, which decreases DSCR.

James Wise · Answer

You're likely dealing with a grandfathered in non conforming property. Your resi lender is correct in the fact that they are difficult to lend on. Very few of them so low amount of comps so I'd expect your appraisal to be a crap shoot. Could come out favorable, could not.

Dan H. · Answer

Some items in your post are not clear to me.  Are both houses permitted?  Is it a detached duplex?   a house with an ADU.

As long as both units are permitted, you should be able to get conventional financing assuming you qualify.  Conventional financing is available for less than 5 units.  However, it is not available if an ADU has been added to a multiplex.  Seeing there are only 2 houses, we know an ADU has not been added to a multiplex.  start by verifying the tax records reflect what exists.   If the tax records matches what exists, conventional financing should not be an issue.

If the tax records do not reflect what exists, you will have challenges getting a decent return on any rehab of the unpermitted structure.

Good luck

BRRR, 2 houses 1 lot? Refi issues?

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