Are Duplexes considered commerical property

9 Replies

Hi BP community!

Thanks for looking at my post....As stated below I am an investor but very new with respect to others that have multiple-multiple-multiple properties and a longer stance of time.

I'm an investor dealing primarily in SF (own a townhouse in MD, 2 SF in FL). I've found a duplex and am looking to add that to my portfolio. I am a buy and hold investor and am looking at duplexes to diversify. My buying experience is purely with SF. The townhouse I used to live in and moved away so it's a grandfather investment.

I've been doing a lot of reading and running numbers to see what it will yield.

The duplex I found I did some research on for the property (taxes, etc) and previous owner deed and mortgage records (public records) and there is a statement in the mortgage papers:

THIS IS COMMERICAL PROPERTY AND IS NOT INTENDED TO BE THE HOMESTEAD OF THE MORTGAGOR HEREIN.

I'm focusing on the "COMMERICAL PROPERTY"......

Up to now I was not thinking that duplexes were considered commercial property....There are triplex units and quads and of course jumping into the 10-20 units and those I though were considered commercial.

I guess if I step back and look at the fact that the dwelling houses multiple tenants, then yes I can see it being classified as commercial.

I can't find anything on the county appraisers web site for the records of this property that indicate "commercial". The deed looks just like the deed for my own SF.

1-Are my assumptions correct, is a duplex classified as commercial?

2-If this is commercial, what else can I expect that would be different than a SF with respect to taxes (I will be running this by my CPA)..., mortgage (I have a meeting with my lender next week and will now have to tell them to find out what I'm up against)....

3-I've never dealt with commercial property. Any advice is welcome, what to look for, what else am I missing....

4-If this is commercial property, what other questions should I be asking and to whom?

Thanks and have great Memorial Day weekend!

Hi Daria,

1-4 units are usually considered residential.

This might have been a commercial loan. I think mortgage companies state this in the lien to make it easier to foreclose on the property in case the borrower does not pay. This is why some hard money lenders require the title of the house to be held in an LLC.

Chi

HMLs look at commercial loans as non-owner occupied, even if the home is a single family residence.  If you live in one side of the duplex, it is a residence, if it's totally an investment, it's commercial.

Officially any building with more than 4 units is considered commercial.

For financial reasons most lenders will do a 2 unit as residential and a commercial unit would consist of 5 or more units. I have heard many reasons for working it this way, most of them are for financing with HUD products.

thank you all for the response!

@Darren Eady it's strictly an investment and I will not be living in the duplex. It is a single building split with units side by side. Both will be rental. 

Based on what @Jacques Wurms and @Jeff Semrow said regarding the number of units, it appears this will be treated as residential. 

How can I be sure? Is this something that my lender will be able to tell me given they would be doing the financing they have to know what they are financing? I have a meeting with her on Tuesday.

A bank lender will call this a residential property and a private money or hard money lender will call this commercial.  Definitely talk to you lender that will be helping you with the loan and they will explain how they classify the transaction.  

Have a great holiday weekend!

It does have to do with the type of financing that was used to acquire the property.

There are a lot of lending regulations that have been established to protect typical homeowners. So lending on an owner-occupied property adds a lot of effort/cost (to adhere to the regulations).

Investors are presumed not to need all that protection, and private/hard money lenders are happy not to offer them that protection (thereby avoiding all the compliance costs). But it means that the loans must not be used to finance OO property.

On residential vs. commercial (simplified):

1-4 dwelling units is considered non-commercial, which basically means that the borrower's personal income is used to qualify for a loan.

Five units and above is considered commercial, which means that the income generated by the property being purchased is used to qualify for financing. It doesn't really matter what the buyer's income may be.

There are some private lenders that will lend on a 1-4 unit property (normally non-commercial) using commercial terms, meaning that the income generated by the property will be used to qualify: the buyer's loan... the buyer's income doesn't really matter. But a common restriction on these loans is... the property must not be OO.

Best of luck!

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