Multifamily: How to determine # of units?

4 Replies

I have seen general questions and uncertainty from various people about multifamily properties and how they are classified during the application for a mortgage. There seems to be some ambiguity in determining the # of actual units in your prospective property, and many properties have convoluted layout or usage. Some who ask this question can be shady persons trying to skirt the law, but I have found many honest requests for help, only to be barraged with clearly bad opinions for answers. 

Can somebody give an exact response that always holds true on how this is determined by your lender, county, city, etc.? Is it the number of kitchens? Is it the number of paying tenants? Is it the number of exterior doors? Is it the intent of use by the new owner? Is it the number of addresses? Or is there a definite legal/tax status given to each property?

I would love to have the answer for those who need it.

@Harrison Smith ,

I'd look at the number of discrete living units.

For example, you may have a two-story house with a basement apartment. Each has its own front/back door, for example, no interior access to the other unit (a stairway, for example), ...

Then again, you do need to verify zoning, variances, etc. An area zoned R1 is not likely to permit a second living unit, for example, without a valid variance.

Dunno if this helps...

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@Harrison Smith  I would typically look at the number of units legally permitted by the city or town if it wasn't clear by looking at the building itself.

You can't just throw up a wall in between units and add a kitchenette and/or bathroom and have a legal extra unit.  You would have to go through the building department of the local jurisdiction to add units.  Illegal units are not good for adding value to a building anyway.  If very poor quality construction is done on a property and it is not typical for the neighborhood and the use does not comply with zoning, you are probably going to have a problem obtaining a loan.  If you can't even tell how many units a property is really supposed to have by doing a walkthrough, I would guess that the construction quality is not very good.

Here's some guidance on how accessory units (to an SFR) would be viewed. In some cases they are OK, but no value will be given to them and you cannot use rental income from them to qualify.

https://www.fanniemae.com/content/guide/selling/b4/1.3/05.html

Updated over 5 years ago

There is no one correct answer for every property because it will depend on the quality of the construction and what is typical or accepted in that particular market.

Your county should have the number of units listed on the tax records.  I'm in King County in WA for example and I can go to King County parcel viewer, lookup a property and see how many units it is registered as having