Can I get a residential mortgage for a 5 unit that could be a 4 unit?

Question

I'm interested in purchasing a property that is currently rented as a 5-unit. It's got 4 structures on it - a duplex that at one time was rented as a single family, and 3 cabins. It only has 4 gas and electric meters, so I probably would prefer to rent it as a 4-unit when the current tenants move out, since the current landlord is paying all utilities on the duplex/single family. The property is zoned commercial. The county records/tax assessment have it listed as a 4-unit property.

Thanks,
MJ

Steve Babiak · Answer

A property that is zoned commercial is probably going to need a commercial loan, IMO.  Number of units is no longer relevant.  Example on my local MLS: a hair salon with apartments, total of 3 units.  Not a deal for me at all, but kept coming on the multi-unit search automated emails that we get from agents.  Initially, it did not have this remark that later was added: Financing will require a commercial lender.  My guess is that it went under contract with a buyer who wanted a residential loan, and the loan fell through; the listing agent then got smart and added the remark so that it did not happen again.

Mariah Jeffery · Answer

I forgot to mention that this is very common in my area. I recently bought two that have multiple structures on one lot, and I know there was at least one more similar sale within the last 6 months, so comps shouldn't be an issue. However, we may run into the issue that there are too many structures on the lot and the property is grandfathered in (since it was built in 1928) and if one burns down, the city would not allow it to be rebuilt.

Bill Gulley · Answer

Hi, I have gotten some strange proeprties into the secondary market in the past. Like a house on a commercial lot, a house with a converted garage with a beauty shop and a home with it's own air field and hanger. LOL

I'd define this as 4 units and a storage or multi-purpose building. If you need it as a rental, it's commercial. The problem is not going to be zoning or having detached buildings so much as the appraisal and comps showing that it is common for the area. If you have different lots and legal descriptions you might try to finance the one with the highest value, probably the duplex, and if necessary get a portfolioed loan on the balance, as a piggy-back loan.

Otherwise, a portfolioed loan (a loan held and serviced by a lender/bank) can probably take care of this as a blanket loan, covering all the properties and the rate and terms should be very similar to secondary market adjustable rate loans, such as a 3/1 or 5/1, watch the index, caps and ceiling rates. Bill