Single Family or Commercial?

22 Replies

Hello BP! I always like to open with a thank you for those who take the time to spread their knowledge and experience. Appreciate you 🙏🏻

So I found a smoking deal on a 5-Unit property. The owner very cleverly and efficiently turned this 3 story SFH into 5 separate units. Four 1bd's, and one 2bd unit. They all have their own kitchens and community laundry in the basement. Not exactly sure how the utilities are broken down yet but I'll learn that soon.

This may be a stupid question but would this qualify as a commercial property sense it’s over 4-units?

Hello Anthony! Yes, anything over 4 units is considered commercial. Unless your state has some special rule that I am not familiar with you would need a commercial loan. 

@Anthony Porembski , it really all depends. Did the owner have the property re-zoned as commercial multifamily? Did the owner, pull permits to have this work done? If the owner, hasn't done any of things, I would be very cautious moving forward.

It's already been answered, by yes. A true commercial is 5+ units. I'm a commercial mortgage broker and can help with financing, or just with answering any questions you may have. Part of our role is to guide and educate!

Please feel free to reach out via PM here :)

Cassandra

@Tj Hines

All excellent points and great review of detail to my initial post. I’m learning all those things as we speak and moving very cautiously. Thank you for you input Tj.

A few things to consider @Anthony Porembski  

- what types of tenants do you attract? Often: the smaller the unit, the more frequent trun over

- you probably pay for heat for all tenants

- ownership expenses are fixed per unit and mostly a function of kitchens, bathrooms etc, income goes up with bedroom count - at the same fixed cost

- your management cost is a fo=unction of tenant count. More units, more management.

- you won't be able to get a 30 year fixed rate loan

In light of all that it would have to be a really good price to make it a smoking deal!

Yes anything 4 and over is commercial. It could be a good deal depending on how the utilities are broken down.  If the owner pays them you could be taking a huge hit to your cash flow.  But there is always some improvement that can be made like slowly raising the rent over time to offset some of that.  Or even a storage shed in back to offset some costs.

@Marcus Auerbach

Excellent points and all things mentioned need to be considered. It definitely seems more conducive to the transient tenant and I just learned that I’ll be eating most of the utilities so the more I learn about the property the less attractive it seems. Thanks your input Marcus, have a nice weekend.

I would recommend focussing on your goals. If you have big goals you need to focus on commercial to scale. I would not focus on single-family as it can cause more headaches. Commercial meaning Multi-Family is the best way in my opinion to build wealth. I have a couple of single-family rentals and flips I am currently selling to focus on Multi-Family full time.  

It honestly depends on your goals. In the short term; next 5-10 years, I'm focusing on single family while learning about large MF. After I stabilize the small portfolio I'm going head first into large MF syndication. Of course I'm networking and learning about both along the way. You can't just show up one day and expect to buy larger MF deals unless you have large amounts of capital on hand, experience, or a mix of both. So focus on your long term and short term goals and work back from there. RE is just a vehicle you put money into based off of goals, risk tolerance, and current/future market conditions.

Good luck!

@Anthony Porembski I see you’re losing interest in the property, but I would say on the subject, it sounds to me like he squeezed some units in and probably did not permit with the city. Just a total guess, but this happens a lot so watch out. If you plan to buy and hold it may not be the worst thing, but will probably effect you when trying to finance if the bank catches it.

I own a triplex that sounds similar, keep in mind that it will not be a good flip or resale in the future if it was not properly permitted and or if eack unit does not have it's own power and water meter. In my case the math still worked, but I also plan to basically never sell the property. Sorry it ended up prolly not working out! Kudos for doing your research though! I have a great private lender I would highly recommend if you find one with 4 or less units :)

@Jonathan Greer

It’s looking like you’re right and even though the numbers make sense I don’t think it’ll be worth it in the long run, especially if I’m to use the brrrr strategy. Thanks for your reply Jonathan, I appreciate it.

@Chris Salerno

Hey Chris, I feel you and share a similar mindset. I need to scale to get to that level first. I'm just getting started in the game and need to get a few single family properties under my belt and network into some commercial investor circles before I feel comfortable leveling up past SFR. Thanks Chris.

Originally posted by @Anthony Porembski :

@Chris Salerno

Hey Chris, I feel you and share a similar mindset. I need to scale to get to that level first. I'm just getting started in the game and need to get a few single family properties under my belt and network into some commercial investor circles before I feel comfortable leveling up past SFR. Thanks Chris.

You are very welcome Anthony! keep at it. Do not let anyone stop you from reaching your goals.

 

@Ashley Hum

Hi Ashely! Yeah it didn’t work out. Looked much better on paper but was definitely worth a look. I’d love to connect with your private lender when the opportunity presents itself. Thank you Ashley.