Financing Multi Use Buildings
“Mortgage Financing Challenges For Multi Use Buildings”
When trying to arrange mortgage financing for a multi use building or mixed use property where there is both a residential and commercial use present, there can be a number of different challenges you may have to deal with in order to secure the funding you’re looking for.
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So when we’re talking about a mixed use building, this could be a store on the lower level of a two story building with one ore more apartments on the upper floor.
The key point here is that the property has more than one type of permitted use.
So one of the first challenges that come along with multi use building financing is that borrowers often times think that financing will be available through a residential mortgage financing program.
Almost without exception all lenders will consider a mixed use property as a commercial deal when they consider your application for financing.
That in of itself is not necessarily a road block to get financing, but can create a few issues.
First, even though a commercial mortgage program is going to be required, you may still end up wasting considerable time with a residential lender who will take your mortgage and even get part way through the process before they say they can’t help you out right or that they will need to direct you to their commercial lending department.
Second, commercial property financing is going to cost more than residential property financing, all other things in the comparison between the two being equal. So make sure you factor in a higher cost of financing from 0.5% to 1.5% above residential mortgage rates.
And a mortgage broker that knows commercial business will understand this and direct you accordingly to appropriate lending sources whereas a broker that strictly focuses on residential may not.
What I will call the second major challenge is to work with a commercial lender that is prepared to fund your particular deal.
Banks and institutional lenders for the most part are not interest in funding multi unit buildings, especially those under $500,000.
But if you were to go an apply to a bank or institutional lender for this type of commercial property loan, they would likely insert you into the standard application process which could end up costing you both time and dollars before they end up getting around to saying no. So once again, its important to be working with a commercial lender that can actually help you with your financing requirements.
And even if an “A” lender is prepared to do the deal, their application to funding process may take 60 to 90 days to complete so you’re going to need to sure you have enough time to go through their process.
The third biggest challenge I see most often when working on the financing requirements of a mixed use property is dealing with the quality and strength of the leases in place as well as the underlying cash flow.
The leases in place and who the tenants actually are can be very important to an “A” lender.
Lenders are interested in the lease term, rate, and the financial strength of the tenants.
If the lease terms outstanding do not match up with a requested financing term, then that can be a problem.
If the tenants are mom and pop type stores or small operations, there may not be a lot of Big bank confidence in the tenant’s ability to pay over time.
Being able to effectively deal with these three challenges will go along way to getting the commercial property financing in place that you require.
If you require financing for a multi unit building, I suggest that you give me a call so we can go over your situation together and discuss different potential commercial mortgage options.
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About the Author Joe Walsh
I'm a Toronto Mortgage Broker that arranges mortgage solutions on residential and commercial real estate property. With over 30 years of mortgage financing experience, I'm able to quickly assess your financing requirements and provide relevant solutions for your immediate consideration. Joe Walsh Google+ YouTube Channel