At what point is it commercial?

Question

Last year we bought a triplex in Joplin Mo and planned to do and extensive rehab and rent it out. Half way through the construction an inspector came by and gave us a stop work order because we were not doing it to commercial code and didn’t pull a commercial permit. Is a triplex really commercial? And if it does qualify as commercial according to building standards, can I refinance the building based on its commercial value?

Erik W. · Answer

Hi @Sawyer Smith!  I'm just up the road from you in Springfield, MO.

Typically, commercial building is anything over 4 units, at least in terms of loans.  I don't see anything hitting commercial as far as usage goes until your building requires fire suppression systems.

For practical purposes, 4 units and under are almost always residential, especially if the primary use is for residential purposes only.  So I'm a bit surprised they're calling your building commercial.  But it could be a zoning issue.  The only way to really find out is to ask the Govt bodies in question.  Time for a call/trip to City of Joplin Office of Planning and Zoning to find out the ins and outs of your property.

Kenneth Garrett · Answer

@Sawyer Smith

A three unit building in the building code is an R-2 and is deemed to be commercial and must the requirements of the (IBC) International Building Code).  If the building were to be set up like a townhouse independent egress from each unit and two hour separation then it would fall under the (IRC) International Residential Code.  Financing is subject to its own distinct rules and as others have said; 5 units or greater require commercial financing.  In your case, you could use residential or commercial financing.

Sawyer Smith · Answer

@William Costello no they are all residential. We own the house next door and didn't run into any issues in its renovation. Sounds like I need to start hounding local government.

Bonnie Griffin Kaake · Answer

@Sawyer Smith I highly recommend contacting the city zoning department. If the area is zoned single family residential, you may not be able to build a multi-family without a variance. On the other hand, the IRS considers multi-families of any size "commercial". They also consider Short-Term Rentals STR as non-residential/commercial and these STRs have to be depreciated over 39 years. You can expedite the depreciation on any commercial property, including residential rentals with cost segregation and get about 30-40% of your purchase price in depreciation up-front. If your land value is high, it could effect the results. You cannot depreciate the land. This gives you a lot of cash-flow in the first year.

William Costello · Answer

@Sawyer Smith are there other commercial properties next to it? But agree, that it varies by definition area from area. Every local law and definition could be different. Good luck!

Spencer Gray · Answer

Commercial is usually defined as 5+ units. That being said, there may be local codes that use a different definition. I would look up the specific code for your area.

Eric Aherin · Answer

Are there other commercial type properties in the area? Or multi family with more than four units? I agree with Eric W. Sounds like a zoning issue.

Sawyer Smith · Answer

Thanks, @Eric W. This is really helpful! I had thought it was 4 or more as well, so when we bought it I didn't do the necessary research. Lesson learned.

At what point is it commercial?

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