Is my property commercial or residential?

[Shawn-Karisa Shaffer]

I partnered on a deal we found outside of Indianapolis. It's a small 6 unit apartment building with 1 bed 1 bath units, just down the road from a university. It needs a tremendous amount of work. We paid $30k for it, probably going to take $100k to put it back into shape. But then it'll bring in $3000 in gross rents per month ($300 is conservative, probably more like $3500). So if we're in it for $130k, heck, even $150k, I think it'll be a good deal, but I have a dilemma. The local county assessor classifies it as SFR, not commercial. The property card states the zoning is SFR, but then also labels it 4-6 units on the second page. Currently, the building is even sub metered for 6 units. And the local building official called it commercial.

I think we can secure some rehab financing, but we'd like to do a long term commercial loan once we have it repaired and rented. I know in the lending world, they want 5 or more units to be considered for a commercial loan, but what do they do in this case? Does FHA/ HUD determine the number is 5? If we have the zoning changed or updated to the correct zoning, will we fall in that commercial classification?

Any ideas or thoughts? Who determines whether the property is commercial or residential? The local building authority? Or does FHA? Or?

[Bjorik Mutize]

Anything above 1-4 units is considered commercial, and i can assure you most lenders you speak to will say the same, meaning pointing you towards commercial loans. 

I'd love to see other posts about what is going on with it being classified as a SFR by the city.