| Looking to live and work in a commercial bldg. Posted by: Cherie Mar 6 2004, 09:35 PM My husband is an established artist and I am an engineer for the state. We have been looking to purchase a home where can have a large workshop/studio. Another factor is that some of the materials he uses to create his work are considered hazardous, and while we use them in very small amounts we can’t have neighbors too close too us. We had been looking out in the country for a house on at least an acre or two because we thought that was our only option. Today we viewed a beautiful, historic, commercial bldg in the downtown area of a small town. The bldg is quite large (9800sf on two floors). Much of it has been renovated, and what hasn’t been renovated is simply unfinished…nothing is old or in need of immediate repair. 1/2 of the top floor has been turned into a gorgeous apartment and the people who own it now are actively living there. The space would be perfect. My husband could have his shop/studio space. We could live in a spacious apartment. And there is even a nicely finished storefront that we could either rent out of use for retail. HOWEVER, the realtor said the only loan we’d be able to get would be a commercial loan which would require at least 20% down since we couldn’t get PMI on it. I have a little to put down, but there’s no way I can come up with 20%. Our combined income is currently around $55000 a year, my credit is mediocre. A family member is willing to co-sign who has perfect credit and plenty of assets and equity. They may even be willing to transfer a small piece of property into my name for collateral/equity if it would help. We have several people who are willing to invest in our business (which is my husbands artwork) but we’d rather not take on investors. My aunt and uncle (a residential realtor and contractor) said the only thing that she could thing of would be if the seller was willing to carry the mortgage on the 20% down. She said that the bank may still not be willing to work it that way. Any suggestions on options I can look into? Any thoughts or input would be greatly appreciated. Posted by: loanuniverse Mar 6 2004, 11:39 PM Cherie: Let me se what I can do with the information you gave me: Today we viewed a beautiful, historic, commercial bldg in the downtown area of a small town. The bldg is quite large (9800sf on two floors). Much of it has been renovated, and what hasn’t been renovated is simply unfinished…nothing is old or in need of immediate repair. 1/2 of the top floor has been turned into a gorgeous apartment and the people who own it now are actively living there. Well the first thing that comes to mind is that this is a nice sized building. The other thing is that with only 1/2 . of one floor being residential { do check to see if the conversion was made according to code and zoning }, this is definitely a commercial property. The realtor is probably right about a commercial loan being your only choice. Unfortunately, his 20% down payment requirement is also on the mark as to what the industry standard is. Our combined income is currently around $55000 a year, my credit is mediocre. A family member is willing to co-sign who has perfect credit and plenty of assets and equity. They may even be willing to transfer a small piece of property into my name for collateral/equity if it would help. We have several people who are willing to invest in our business (which is my husbands artwork) but we’d rather not take on investors. The case is very unusual and would take a lender willing to work on the underwriting to make it something that can be considered. Normally, one would not consider the personal income as a source of repayment, but since there is a residential living space, a case could be made for using what you would be spending on housing as the repayment source for the commercial loan. I think that residential lenders use a rule of 28% of gross income to determine how much house you can buy. In your case $55,000 X 28% = $15,400. You never mentioned how much the building is selling for, but with that size property I think that using only your personal income will be a bit short. I hate to be the bearer of bad news, but in addition to your loan-to-value problem, I see a debt repayment problem. If you had a firm-commitment for a prospective tenant for the leftover space, the cash flow would improve. Without a lease or something to show the bank, the case for repayment gets hard to make. My aunt and uncle (a residential realtor and contractor) said the only thing that she could thing of would be if the seller was willing to carry the mortgage on the 20% down. She said that the bank may still not be willing to work it that way. That is a great idea, but she is right about some banks wanting some sort of commitment from the buyer that would not make it easy for them to just leave. You do know that you can submit the request to more than one bank, right? The good thing about a commercial loan is that usually there are no fees until the bank commits itself to give you the loan with a written commitment letter. Walk away if the lender wants a fee just to take a look at the loan. Any suggestions on options I can look into? Any thoughts or input would be greatly appreciated. – If you really like the property, and can afford to spend a couple of months to see if you can purchase it. Here is my feedback {I recommend that you consult a real estate attorney for all of this, specially when we are talking contracts}: a- Try to get seller financing for at least 20% of the purchase price. If 25% then even better. Do not forget to bargain for good rates and terms. Hopefully, you will also bargain the price. b- Make the contract subject to obtaining the desired financing. Just in case you get turned down. c- Give yourself extra time before closing. d- The idea of having a cosigner and providing additional collateral should be explored to make the deal more digestable to a lender. e- The property is commercial, maybe you should buy it under a separate legal entity. f- Not taking a partner in your husband’s business does not mean that you can’t take a partner to purchase the building. Think of this as just a real estate investment. I hate to say it but the deal is complicated, the lack of down payment is a problem, the repayment might not be there, and to top it off the personal credit is not so good. But what I would really hate is for you to not even try to see if there is a chance by not sitting with a banker and going over the numbers. One of the reasons why I give advice is because I get upset at bottom feeder lenders that keep advertising with pitches such as “tired of banks saying no?”. Most of those people assume that a bank will say no and end up paying more than they should without even visiting a bank. The worst thing that can happen is that they say no! So what? Hope this helps Posted by: Cherie Mar 7 2004, 12:16 AM Wow…some great advice there. Thanks. The asking price is only $169,000. I’m pretty sure I can bring that down slightly. Well heck…if I could somehow come up with the 20% the actual loan amount would only be $135200. I think this is within our range??? The size of the space total is 9800sf. Basically right now the lower half, 4900sf is set up to be commercial. The upper half is split with some being apartment and some being unfinished, but the entire upstairs 4900sf would eventually become residential and I believe I could get the assessor to grant me that. In fact, if it were to change anything at all, there is an area downstairs that could be considered residential as our personal garage, thus changing the balance to about 60% residential and 40% commercial. If it is possible to get a home loan on a commercial bldg, we would even be willing to lose the commercial zoning and go all residential. The workspace is really just an artist studio anyway and our business is completely web based (international). We currently run the business out of our home (rental). Doing that we couldn’t rent out the space, but I don’t know that we’d be great landlords anyway. If we head the commercial and business route, we could always try the SBA too. At any rate, thank you so much for the advice and encouragement. I’m going to head for my bank on Monday and sit down with them. I’ll visit several lenders and see what they have to say. This is a great site you’ve got. I know how much time must go into this and I must say, VERY GENEROUS of you! Posted by: loanuniverse Mar 7 2004, 12:21 AM The asking price is only $169,000. Well that is cheap…. I could not even buy my modest house with that amount in my city. If the zoning is mixed use commercial/residential maybe you can convince a lender to underwrite it as residential. That would be much better in terms of rates and how easy the underwriting will go. Good luck. |
