Residential or Commercial ????

Question

It seems as if I have been drawn to odd properties that are hard to evaluate.  This example is no exception but can make a big difference in the potential appraisal of the property.

So this is a mixed use property.  A business on the main level, and two 2 bed 1 bath units on the upper level. The property, according to tax records, is zoned as a commercial property.

However, will an appraiser use a commercial type evaluation such as CAP rates, or can they have the flexibility to use a residential comp type format?

Are they bound do go one way or another or because it is a mixed property, do they have flexibility to determine which way it should be appraised?

This can make a big difference the in evaluation of a property and has caused me to go gray way sooner than I would have liked :)

As always I appreciate the insight and efforts of my Bigger Pockets Colleagues.

Jenny Hobbs · Answer

@Kyle Woodruff

Yes, I figured:-)

Kyle Woodruff · Answer

Thank you for the input Jenny! I think it is beneficial to keep it in its vurrent format

Jenny Hobbs · Answer

@Kyle Woodruff

This would be a commercial appraisal.

..unless for some reason the best use of the property (highest and best use) would be for the business unit to be converting to another living unit.

Kyle Woodruff · Answer

Very cool way of analyzing it @Eric Goldman

It seems like everything I find that people want to sell is unique and not a cookie cutter way of analyzing the deal.

I recently just purchased a 4 unit building with 13 storage units on the property.  I have found nothing like that within 500 miles of my area to see what a CAP rate would be...Am I safe to use a commercial apartment building as a comp?

I feel like that is what an appraiser would do but I am not sure.

Another question...If I do a value add like a rental box truck will that be factored into my property evaluation? I wasn't sure because its not technically apart of the property and more a asset of the business, and can move with me if I were to sell.

Thanks again for all the help

Eric Goldman · Answer

@Kyle Woodruff most likely, it will be a commercial appraisal and all that goes with it. Finding a small cap commercial lender is usually the problem.

Other note, I like mixed use buildings as long as the commercial unit has a long term lease and the rents above can pay the mortgage if the commercial unit goes unrented!