My first real estate mistake

9 Replies

I made my first real estate mistake. I purchased a multi-use residential mixed general commercial property with a primary residence conventional mortgage...

At first. I thought this was a wise thing. Due to reduced interest rates. All I had to do was live in this house for 12 months. Easy! I reach 12 months, tomorrow!

Now for the bad news... the mortgage company will not allow me to lease the property to a commercial company.. nor can I refinance into a commercial loan, because I do not have 2 years of business income...

What do I do? My only understanding of a solution, is what leads me to this site....

Perhaps I obtain a private loan, to pay the remaining loan balance. Due to appreciation, and a sizeable downpayment, I already have roughly 50% equity.

Any ideas?? This property is worth more than double when leased commercially, instead of residentially.

James

Ouch! That’s not a good situation!  The best news is that you’ve hit 12 months and the property is season.  I would recommend you look at private money to help you get out of the residential mortgage and extract some of your equity.  You’ll be paying more in interest but it will give you the flexibility you need!

Thanks for sharing so we're all aware of this potential pitfall. But something doesn't sound right. Why would any mortgage company assume anything other than a commercial lease on a building with commercial space (I assume this is what you mean by mixed use)? And how would they know what type of lease you're negotiating a year after closing? Is there more to this story?

@James P.

Something doesn't sound right. You bought a mixed use property with a residential loan. That is unique in itself. What did they think you were going to do. You could refinance the property into a commercial loan. You'll need to own the property in a LLC or some other entity. Interest rate will probably be between 4%-5% depending on your credit. They will give you 70%-75% LTV.

@Jason Leavitt

Hi Jason,

Thanks for responding.

I am not entirely sure. This is the first place I have ever purchased. I am new to the game.

The property was an out of business car dealership, which contained a small 90 sq foot office, in addition to a legally non-conforming 2bd house. When I began looking for loans, the company told me that it was enough of a % residential, to do a residential loan.

Regarding the lease type. I suppose the mortgage company would not know what kind of lease I would be negotiating, however... I would never lie. I was raised to work hard, do my time, be patience and be honest. I am not in this game for greed. I am in this for the security of the investment to insure I have a roof over my head during an economic collapse. Dirty hands, clean money.

James

@Kenneth Garrett

Exactly!! Haha. I should have asked the mortgage company more questions from the start.

Although, on the brightside, I am in a seasoned mortgage, and the appreciation was strong. I just had it reappraised by same mortgage company, and recieved an extraordinary cashout refinance offer. However, they asked for it to be my primary residence again, so I turned them down. My time here has come to an end.

So. Kenneth. Where do you think I should go to try and get this type of loan? I would love to refinance into a commercial loan, but I am having trouble finding one.

James

@James P.

Contact the commercial division at a bank you work with or a local bank in the area.  They should be able to help you.  Stay away from the big banks they are to difficult to work with on small projects.