Rental Property Investor · Greater Boston Area · Member since 2018 · 258 posts · 105 votes
Hi everyone,
Happy New Year!
My team and I are working on a multifamily deal in New Hampshire. The property is currently a 4-unit (two 3-bedroom units and two 4-bedroom units) multifamily. However, there is ample space in the basement that can easily be converted into a 1-bedroom or studio apartment for a great value-add opportunity.
We've been talking to some lenders about financing options, what they'd require us to do, the city about zoning/permits, etc., but I wanted to reach out to the BP community and see if anyone has firsthand experience with this type of situation, and if so, what you did.
Would you get a residential mortgage since it is currently only a 4-unit, and it is not guaranteed (yet) that the basement can be turned into a 5th unit? If the 5th unit does become possible a few months after closing with a residential mortgage, what did you do about financing at that point? Must the loan be refinanced to a commercial loan? Would you just start with a commercial mortgage?
Hollis, NH · Member since 2018 · 60 posts · 43 votes
7y
I would get residental. That way you can lock the intrest rate for 30 years. If you convert to a five unit after you close you can keep the residental loan. No need to worry about what interests rate will be in 5-10 years which is an issue with a commercial product.
Hollis, NH · Member since 2018 · 60 posts · 43 votes
7y
I would get residental. That way you can lock the intrest rate for 30 years. If you convert to a five unit after you close you can keep the residental loan. No need to worry about what interests rate will be in 5-10 years which is an issue with a commercial product.
Rental Property Investor · Greater Boston Area · Member since 2018 · 258 posts · 105 votes
7y
@Matthew Stanizzi Completely agree - we'd really prefer to not deal with the commercial product if we don't have to. We just don't want to run into issues with a lender if we go residential and then add that fifth unit.
Hollis, NH · Member since 2018 · 60 posts · 43 votes
7y
You can always ask the lender to double check but I don’t think your restricted from modifying the home after purchase.
If you want to refi however you could have a problem.
I wouldn't plan on a standard BRRRR in this situation. That being said the lending value of the home will change. Instead of being valued compared to comps you be valued on NOI/CaP rate for the area.
Rental Property Investor · Greater Boston Area · Member since 2018 · 258 posts · 105 votes
7y
@Matthew Stanizzi I don't think we would be either - I'll talk more specifics with a lender.
We don't have a plan to refi or BRRRR this property, but wanted to see if anyone else had been forced to refi into a commercial product from adding additional units to their properties.
Lender · Augusta, ME · Member since 2014 · 55 posts · 21 votes
7y
@Robert Leonard
You should go
With residential financing. Less expensive. If I were licensed in NH I’d help you with it but unfortunately I’m
Not. I don’t think it would
Be an issue after closing with a 5th unit because it is not like you are altering the property into a bed and breakfast or boarding house. But you should check with the town beforehand for zoning and permits, etc.
Investor · UT · Member since 2018 · 55 posts · 7 votes
7y
Ive heard conflicting opinions about residential 4-plexes versus commercial 5-plexes (loans, forced appreciation, etc). For those of you with experience in both, are commercial loan products significantly more labor intensive to deter you from using them?
Lender · Chicago, IL · Member since 2018 · 352 posts · 147 votes
7y
@Robert Leonard of course purchase residential as a 4 unit, you can still add the 5th unit and keep residential, it would be an “illegal” 5 units but buyer can still get a residential loan, only that can’t use the 5th rental for income qualifying purposes. You can also change the zoning to 5 units but would keep the original residential loan. First check the value if you change it to commercial and see if it makes sense
Rental Property Investor · Northville, MI · Member since 2015 · 179 posts · 92 votes
7y
@Robert Leonard All great advice. What is your exit strategy on the property? Are you going to sell it in 3-5 years and if so as SFR or a commercial property. Yes financing on SFR is easier, but what are your plans? The city planning department may not want or can't re-zone it to commercial due to Master Plan of city. Is the property in an area with other Dulplexs, Triplexes and the such or in a SFR neighborhood?
Rental Property Investor · Milford, NH · Member since 2017 · 62 posts · 30 votes
7y
Hey @Robert Leonard have you checked zoning to see if adding a 5th unit will be allowed? Happy to take a quick look for you if you'd like, just need the Town/City you're in and street address, or address close by. Even if you have ample space it doesn't mean you'll be able to do it. I just bought a property that is only two units but 6,000 square feet (attic, basement, 2-story barn). It can be very difficult in NH to add units, I'm having a hard time with mine. I went to the Zoning Board to ask for an additional two units and got shot down, getting ready to go back to ask for just 1 extra unit. If it's not allowed by "right" in the zoning, you have to ask for a variance and have to be able to prove a hardship, which can be extremely difficult.
Rental Property Investor · Greater Boston Area · Member since 2018 · 258 posts · 105 votes
7y
Always another deal!
My ideal markets are Nashua, Manchester, Concord (and surrounding), Milford, Merrimack, Hudson, Derry, Londonderry, Hooksett, and northern parts of MA.
I'd like to stay relatively local to Nashua for a bit, but in the long run I am open to almost any market. My team and I are moving on a deal in southern CT right now, after losing the Nashua property. It's about 2 hours from where I live.
Rental Property Investor · Greater Boston Area · Member since 2018 · 258 posts · 105 votes
7y
@Jaysen Medhurst The property we're pursuing right now is in New London, CT.
I haven't looked in the Berkshires / Pittsfield, MA in the past, but that's not to say that I wouldn't in the future. I strongly believe in the philosophy, "Live where you want to live, invest where the numbers make sense."