All Forum Posts by: Christopher Za

 I'm sorry Barbara. I didn't believe that any of that info was relevant to the question I was asking, which is simply: 

Will a commercial bank regard a properly differently if the buyer is using the MF property as a primary residence.  It's looking like the answer is no...

* The section heading of this subforum stipulates that this is for commercial "anything 5+ units and over." I understand there may have been confusion when I assumed that others were operating on that understanding. 

@Account Closed

Yes, it's a great neighborhood. How do you know the area? I'm in contract on another building (in the area known as Licking B (versus A, where this one is) owned by the same guy. Apparently he's had this one on the market (not mls until this year) for about 15 years. The properties that sell in that area are going to people who basically overspend massively relative to the market (I know first hand of a couple of properties that have had 5M put into them but will never sell for more than half of that right now), particularly if they are looking at a property like this one which would require a great deal of money to restore to it's historical grandeur (what people are doing there). However, as a primary residence for me it would be ideal (my wife and I are coming back to the are from New York, and this reminds of the nicest blocks in Brooklyn, the West Village, UWS etc.).  I could make improvements over time, and maybe some day when I either have more $$ or that golden unicorn buyer comes along, I could even turn it back to single family (though I honestly could never see myself needing more than 3000 ft2). But it's a MF commercial property right now and that's the only way a bank is going to look at it, and on that level it's probably worth about $250K less than he's asking. Obviously, it's going to be a long wait, but I had thought that I might be able to approach him with some alternative financing ideas after some time (he doesn't want to hold paper...yet). The irony is that he's much more realistic about his other 9 unit which has an extremely similar profile just two blocks away. So he's obviously waiting around for that golden unicorn too!

It looks like you've traded in for the part of the world we hope to be in full time someday. Mahalo!

Thanks @Damion Byros but an FHA loan won't work. This is 8 units and combining the apts to make 4 would be cash flow suicide in this market (premium $$ for smaller apts).

@Account Closed

Thanks for the input. I already have an LLC for real estate, so that company would be making the purchase. I also know that I have to buy the property through a commercial lender if going to a bank. The question I have is if there any situations where a commercial lender considers the loan any differently if one of the members of the LLC utilizes the property as a primary residence.

I just spent about 10 minutes searching and didn't find an answer to this specific question so here it goes.

Does a bank look at a MF loan any differently if you make one of the units your primary residence?  

I'm looking in an "A" area. The building has a decent income and just cash flows, but falls short of what seems like banks general stress test figures of meeting a 1.25 DSCR at a 6% rate (even though they'll finance at 4.25%) because the owner's price is too high. However, when I consider living there as a primary residence, the economics actually make it a much more attractive investment for me than a SF or even a smaller apt building.

It's a neighborhood I love and I could actually see expanding my portion of living space over time. The building is a converted mansion in a neighborhood of mostly SF mansions, and so there is always going to be a discrepancy between what it should go for as a MF because it has a very high value as a SF. Even though it doesn't currently meet the bank's numbers, I could basically live there for free - and so it makes a very attractive primary residence option. It's also a signifiant value property ($500K+) and the idea of having most of that paid off by other tenants is appealing. And finally, given that I often have to take long term projects out of town, it would be much easier to sublet my apt than a SF. 

Will a bank consider the loan differently if it's a primary residence. If so, what kind of bank?

@John Casmon @Howard Abell

Thank you both. We just got word from the bank that they will not finance because of their appraisal that includes the scope of work that needs to be done (brick). So we can easily opt out of the deal just on the financing contigency clause alone.  However, given that they've also given us a formal appraisal of their value, it's actually also another piece of leverage to re-approach the owner. 

Do you find that you can work out a new deal that is part and parcel of the current deal or do you have to rip that up and simply make a new offer?  Taxes are very high in my area so a substantially lower purchase price on record would actually also be quite beneficial. 

Hi Everyone,

We are in contract on a 9 unit MF. While we anticipated some repairs in our offer price, the inspection has revealed some more significant issues with the slate roof (expected) and the brick and chimneys (less expected).  We are still in the inspection phase, and have the Seller's remedial phase coming up.  He will almost certainly not opt to cure (the expenses will be rather large).

I have been told that, in commercial deals, it is simply a take it or leave it proposition and that price changes are not negotiated after the contract is signed. However, my broker is already urging us (unsolicited) to seek a lower price.

So the questions would be:

1) Is it accepted practice to change the price if the seller refuses to cure?  

2) How would you go about negotiating or arriving at a new/fair number?

NOTE: The seller is also in the midst of doing a 1031 exchange with this property.

Thanks in advance for your thoughts!  Learning so much and very excited to be going down this road. 

Thanks @Steve Vaughan.

Just curious, what do you consider to be "not crazy" leverage (or how do you achieve it)? I'm interested in the idea, but similarly don't want to take too much risk. Also, because I'm working with investors, I can't get too crazy.

@Steve Vaughan

I read on another one of your posts that you consider 9% CoC to be too low, given the time and hassle of real estate. However, you mentioned that you're looking for long term buy and holds to pay off an own outright over time, which is also my interest. What do you look for for CoC? And what kinds of properties are you investing in?

The deals I'm looking at are in an area where my best friend has a property management company, which I can use relatively inexpensively (5%) and which will allow me to be relatively hands-off.  In other words, I have to go for less management/maintenance intensive properties (this isn't my career -- yet!).

@Vincent Crane

Ah, thanks. So what you're counting in that first year is the process by which you pull your money back out, so you're looking at the return on your cash AFTER that, not the cash you originally put in.

So in the case of the bldg I listed here, let's say I add $100,000 in value after cutting expenses and raising rents within the first 6 months. I then refinance my now $550,000 property and pull out 75% of the gain, or $75,000. So taking that away from my original 25% downpayment of $112,500 effectively leaves me with $37,500 DP. A $14,000 cash return would net me a 37% CoC return.

Is that right? If so, I can see how people get the numbers you are talking about.  I have a very hard time seeing how they can if not.