Funding for an irregular property.

[Rebecca Acer]

My husband and I found a deal that looks like this - 500,000 for two houses on the same lot. One is a small 3 bed 2 bath that has a tenant in place paying 1100. The other is a 10,000 square foot house with 4 kitchens and 18 bedrooms. It apparently belonged to a polygamist. There is some renovation that has been half done but would need about 100,000 to 150,000 in additional work. Our plan is to redo and live in part and then separate the others into 2 executive rentals which we already have a contract that would be filled from my husband's company at 2000 a month and 3 houses that could be rented out. All of these would be attached but there are separate entrances. Does anyone have any ideas on how to begin to finance this property? We are high earners with no debt but just starting out so can't buy it in cash. 

[Anna Laud]

@Rebecca Acer

Hi Rebecca! 

I'm curious about this set up- and your description of it. I totally get what you're saying about it being basically a 'mixed use' property (of sorts) but even accounting for separate entrances, and even a separate dwelling completely- it sounds like one 'parcel' of land with two dwellings. 

Being an agent you're more likely to have access to supplements that would give you the details on this as well- and you know it would be mentioned if these were two separate parcels for property tax purposes then (at least as far as seller knew). 

I would begin with a cross-reference of the parcel in the legal discretion with property tax records to verify, then go from there in the assumption of proceeding with it as the purchase of one property (singular looking on paper, plural in real life as it's been built up).

I would also be curious (just based on the SqFt you mentioned) what the assessed building value was- if it were based on (what I would assume was the original dwelling as the rental) and if the new 10,000SqFt building was an addition not yet assessed)- only mention as if it's not that's a hefty improvement to think of paying taxes on (at least in most areas it would be)

It seems like your most inexpensive loan product would be a conventional mortgage then, if it does indeed adhere to being 'one property' on paper. 

As for the separate entrances- it doesn't seem like this would matter as much.  I personally have an addition of 2100SqFt in a 'Mother-in law's quarters' with a sperate entrance, yet it's attached to the primary residence, and if I were to sell it wouldn't be financed separately at all- technically two 'dwellings' yet one total property. 

It may not have ever been brought to the accessors attention that there were any additions/improvements on the land, or at least in there current state (vast extent) and you could be ahead as far as taxes go, which sounds like me looking for the silver lining here as I can only imagine what insurance would be on a property of this size. 

Without any commercial zoning, it doesn't seem like you would qualify for a mixed use loan. Without having any commercial zoning making up for less than 40% of total income, but having less than five units total on the main (larger) property and the other as a 'singleton' rental, I don't think a multifamily or apartment loan would work either (in terms of qualifying).

I wonder then if there would be any benefit to then speaking with the owner, doing a lease with option (where obviously you could back out but they couldn't), then subleasing to tenants and paying seller at least $2K a month over (what husband's company pays) plus rental income from at least one of the tenants (or both, depending on what you could afford) what they currently pay in mortgage or entices them enough monthly (plus down I would assume)  to let you pay down towards a lump some purchase on the back end of the deal when terms were met (as high income earners, maybe 1 year terms?) yet you would be borrowing less by that point. Just an idea out there, but yes obviously too would affect your yearly agent cap if you needed to use this sale towards it, and you as agent representing yourself wouldn't get 'paid' on this deal on the front end at least. 

Anyway, I hope that helps!