So I'm looking to secure financing on 3 story mixed-use building in Philadelphia. The asking price for the building is 98K but I'm sure I can get the seller down to 85-90K. I'm able to put 25K down.
The ground floor is a commercial retail space, with a large apartment on the 2 & 3rd floor. Both units are essentially in shell condition. In addition, I would like to roll 20K into the loan in order to rehab one of the two units.
My first option would be to rehab the commercial space and get a tenant in there to cover the mortgage while I slowly renovate the space upstairs into my dream apartment, which I would move into upon completion.
My second option would be to focus on the apartment first spend a bit more money to get it ready much sooner. If I do it this way, I can rent out my current home which would easily offset any losses from the empty commercial space.
Which option works best for financing? Can I get a commercial loan w/o a tenant lined up for the commercial space? If I plan on living in the apartment sooner than later will the fact that it's Owner-Occupied help or hinder me?
Welcome to BP Marq,
My first instinct is to say FHA 203k. That would allow you to get into the property for little down, and finance your renovations. However, I believe there might be a stipulation with FHA that a max of 25% of the property can be commercial since it is a residential loan. Some conventional lenders will do as little as 5% down for an owner-occupied loan, which would allow you to utilize the money you save in a down payment to use for renovations. I would say your best course of action is to reach out to a bunch of lenders and explain what you would like to do.
I run the renovation division of AnnieMac Home Mortgage in Mt.Laurel and do 203k's in Philly all the time. The property sounds doable but as James mentioned there are limits based upon the amount of stories for the commercial space. Also the reno budget is not allowed to be used to renovate the commercial space- only the residential piece. There are ways to work around this. I could write a book on this but send me a PM and we can schedule a call for me to give you all the details you need to make an informed choice if the 203k is the right product for you.
Good luck and always glad to help!
Originally posted by @Max T. :
I think FHA will only fly on mixed use if you plan on living there and running your business out of the commercial space. They will want you to prove your business via tax returns.
Furthermore, I know that there are tons of these properties available in philly. Part of the reason is that, aside from some blocks in some neighborhoods, these commercial spaces are very difficult to rent.
With that being said, if you are able to get financing, I would focus on getting the apartment ready first. At least then you can get some rent coming in while you worry about the commercial space.
Pretty sure they'll lend as long as it's 25% (or less) of the sq footage is commercial...and of course you must live there.
Thanks everyone for all the feedback. So some of the roadblocks that will prevent me from going the FHA route are
1) The property is 1/3 commercial, 2/3 residential.
2) @Jeff Onofrio , the 203k option sounds great however I already have an FHA loan on my current 3 unit property. I've had this property for less than 2 years and don't have enough equity to refi into a conventional.
I'm thinking conventional is the only way to go... but without a current tenant in the commercial space I'm not sure anyone will finance the deal.