Financing for Residential Triplex but Zoned Commercial

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Financing for Residential Triplex but Zoned Commercial

Nigel L.
Member since 2019 · 7 posts · 4 votes

Hi everyone,

I would like to seek some advice / expert opinion here. I'm looking to purchase a mixed-use property in Ontario, which is currently zoned General Commercial (this permits a commercial storefront with residential units behind or above).

Currently it's a residential duplex, with an attached hair salon. My plan, after consulting for renovation expenses and rents, is to convert the hair salon into another unit, thus making this a 3-unit residential. I plan to refinance this after I find tenants and get the 3 leases in place.

My question is regarding the financing of this property. Would I qualify for a residential loan (i.e. 1-4 residential units), or would it be commercial (i.e. if the lender only looks at the zoning info). Or would this vary based on the lender? I'm really leaning towards residential financing due to more favourable rates and a higher maximum LTV of 80%.

As you can see, for all intents and purposes, it would be used as a residential triplex. The bylaws require that I keep the original storefront (around 50 sqft of it), but it wouldn't really fit any commercial use.

An alternative that I know is to get it fully re-zoned, which would permit me to remodel 100% of the square footage to residential. But given the permit fees and time needed for such an application, I'm unwilling to go down that route.

Thanks so much

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Dan WeberBusiness Member
Realtor · Portland, ME · Member since 2015 · 655 posts · 552 votes
5y

The zoning shouldn't matter for the financing. Here's what I would do - first, check the zoning and make sure that a 100% residential building is allowed in the zoning district. You will look at the Table of Uses and make sure that "Multifamily" use is allowed. Purchase the building with commercial financing as I don't believe you will be allowed to purchase with residential financing because of the existing commercial unit. After closing, apply for a permit for a change of use to change the commercial unit to a residential unit. Do all the construction and then close the permit with the city and get a Certificate of Occupancy. Then, refinance into a residential loan. You can provide the appraiser with the Certificate of Occupancy to prove that it is a legally existing residential building. 

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  • Tyler Stiller
    London, Ontario · Member since 2018 · 104 posts · 38 votes
    5y

    @Nigel Liao

    If it’s all residential units you’ll be able to get the residential loan, even if it’s a zoned, to be mixed use.

    Good plan to convert it. Then refinance. Some lenders might give you a hard time, but I can’t imagine they would if it is a truly a residential property.

    0Reply
  • Dan WeberBusiness Member
    Realtor · Portland, ME · Member since 2015 · 655 posts · 552 votes
    5y

    The zoning shouldn't matter for the financing. Here's what I would do - first, check the zoning and make sure that a 100% residential building is allowed in the zoning district. You will look at the Table of Uses and make sure that "Multifamily" use is allowed. Purchase the building with commercial financing as I don't believe you will be allowed to purchase with residential financing because of the existing commercial unit. After closing, apply for a permit for a change of use to change the commercial unit to a residential unit. Do all the construction and then close the permit with the city and get a Certificate of Occupancy. Then, refinance into a residential loan. You can provide the appraiser with the Certificate of Occupancy to prove that it is a legally existing residential building. 

    1Reply
  • Nigel L.
    OP
    Member since 2019 · 7 posts · 4 votes
    5y

    @Tyler Stiller @Dan Weber

    Thanks Tyler and Dan!

    Yes I thought the final loan after renovations would probably be classified as residential but just wanted to make sure...

    The current zoning does allow for commercial to residential conversions, but the commercial storefront/façade needs to stay. There's no "minimum" requirement for the size of that though. Do lenders have a threshold for that? Say, floor area-wise we're maybe looking at 97% residential and 3% commercial (which of course isn't usable for commercial purposes).

    I do have adequate cash for the purchase and it is now a firm deal, so fortunately initial financing (which would definitely fall under commercial) isn't a problem. I plan to refinance after getting all necessary permits from the city, and the residential leases signed. This would essentially be a BRRRR.

    Thanks again!

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  • Hai Loc
    Specialist · Toronto, Ontario · Member since 2012 · 2k+ posts · 891 votes
    5y
    Originally posted by @Nigel L.:

    @Tyler Stiller @Dan Weber

    Thanks Tyler and Dan!

    Yes I thought the final loan after renovations would probably be classified as residential but just wanted to make sure...

    The current zoning does allow for commercial to residential conversions, but the commercial storefront/façade needs to stay. There's no "minimum" requirement for the size of that though. Do lenders have a threshold for that? Say, floor area-wise we're maybe looking at 97% residential and 3% commercial (which of course isn't usable for commercial purposes).

    I do have adequate cash for the purchase and it is now a firm deal, so fortunately initial financing (which would definitely fall under commercial) isn't a problem. I plan to refinance after getting all necessary permits from the city, and the residential leases signed. This would essentially be a BRRRR.

    Thanks again!

     Good job

    Those zoning restrictions is always tricky

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