Financing for Residential Triplex but Zoned Commercial

[Nigel L.]

Hi everyone,

I would like to seek some advice / expert opinion here. I'm looking to purchase a mixed-use property in Ontario, which is currently zoned General Commercial (this permits a commercial storefront with residential units behind or above).

Currently it's a residential duplex, with an attached hair salon. My plan, after consulting for renovation expenses and rents, is to convert the hair salon into another unit, thus making this a 3-unit residential. I plan to refinance this after I find tenants and get the 3 leases in place.

My question is regarding the financing of this property. Would I qualify for a residential loan (i.e. 1-4 residential units), or would it be commercial (i.e. if the lender only looks at the zoning info). Or would this vary based on the lender? I'm really leaning towards residential financing due to more favourable rates and a higher maximum LTV of 80%.

As you can see, for all intents and purposes, it would be used as a residential triplex. The bylaws require that I keep the original storefront (around 50 sqft of it), but it wouldn't really fit any commercial use.

An alternative that I know is to get it fully re-zoned, which would permit me to remodel 100% of the square footage to residential. But given the permit fees and time needed for such an application, I'm unwilling to go down that route.

Thanks so much

[Dan Weber]

The zoning shouldn't matter for the financing. Here's what I would do - first, check the zoning and make sure that a 100% residential building is allowed in the zoning district. You will look at the Table of Uses and make sure that "Multifamily" use is allowed. Purchase the building with commercial financing as I don't believe you will be allowed to purchase with residential financing because of the existing commercial unit. After closing, apply for a permit for a change of use to change the commercial unit to a residential unit. Do all the construction and then close the permit with the city and get a Certificate of Occupancy. Then, refinance into a residential loan. You can provide the appraiser with the Certificate of Occupancy to prove that it is a legally existing residential building.