Why finance multi-family as a single family?

Question

Hi everyone,

Thanks for reading!

Can you share any links or information on why someone would need to finance a multi-family (triplex) income property  as a single family?

Pros and cons? All info welcome!

Thanks again, Megan

Benjamin Buor · Answer

Don't be afraid to ask questions and inquire exactly what she means.

Brent Coombs · Answer

@Megan Roche (aah, you were writing your post above my first post at the same time as me). My comment now is that your OFFER should only reflect what it's value is as an SFR. My guess is that the Seller wants a HIGHER price than SFR comps. The Realtor of course would be happy to find an all-cash buyer, so they could help their Seller get away with that.

Lenders are wise to not give Borrowers more money for non-approved conversions.

Buyers are also wise to not pay extra for the same (but why not - offer LESS instead?) All the best...

Megan Roche · Answer

@Leon Foree I will confirm will the agent, but that would make a lot of sense. When I first saw the listing about a year ago it was listed as a triplex and listed the units and number of beds, but now it doesn't say anything like that The listing seems like a single family now.

David Dachtera · Answer

@Megan Roche,

Ok, that would be "tri-plex" or a 3-unit.

I'm guessing that you need to check the property's zoning. It may be non-compliant / non-conforming as a multi-family, and only be legal as a SFR. Check with your attorney before proceeding.

Leon F. · Answer

maybe its not legally a multi-unit property. They may be saying its an illegal duplex & therefore not a multifamily, but a single family?

Brent Coombs · Answer

@Megan Roche, can you rephrase your concern? Why would you worry that Lenders give (owner-occupier) buyers of triplexes the same rates and terms as if it was an SFR? (It's only when you get to 5-unit or above that different "commercial" terms kick in. Arbitrary, yes, but so what?) Cheers...

Megan Roche · Answer

Hi @David Dachtera and @Kevin Hunter,

Thanks so much for taking the time to answer!

There's a duplex (one large house broken into 3 smaller units) that I'm looking at and interested in for my first purchase because my goal is house-hacking. The property has been on the market for over a year so I'm really suspicious.

I spoke with the listing agent briefly today and she mentioned that others have tried to purchase the property but financing has fallen through. And then she said 'the property must be purchased as a single family'. She said it as if that made a big difference to the potential buyers up to this point.

That's where my confusion came in and I didn't get into it any further with her

Thanks again!

Megan

David Dachtera · Answer

@Megan Roche,

In addition to what Kevin said, remember that 4 units and under are "residential". The multi-unit part has less impact on the financing - it's still a "house". It just happens to contain four or less living units.

Kevin Hunter · Answer

@Megan Roche, I think you might have misunderstood a post or something.  When you talk about financing, there are conventional mortgages and commercial mortgages.  A conventional mortgage is a mortgage that you can get on any residential property four family or less (four family, triplex, duplex, or single family).  For properties larger than a four family, you are required to get a commercial mortgage.  These mortgages typically have slightly higher interest rates and the length of loan can differ a bit.

When you are investing in multiple properties and trying to get several mortgages, some institutions have limits on how many conventional mortgages you can get.  Some say you are capped at five conventional mortgages, some places allow up to ten, and some base it solely on a financial equation.  I can elaborate more if you like.  As a result, investors who have multiple properties, and reach that "cap", have to move to commercial mortgages for loans.  For those, after they have reached the cap, the type of property doesn't matter, meaning even a single family property must be financed using a commercial loan.

I hope this answers your question.  I would be happy to be more specific or elaborate more if you need.  Just let me know.