Residential or commercial mortgage?

[Dan333]

Hi everybody, first time poster long time reader.
I recently have the opportunity to purchase a 5 door appt. building (4 2 bedrooms 1 bach.) by my calculations 8 percent cap rate.
Rent Income 35400
Operating costs 12390 (35 percent)
List price 289000
The building is in a good area in Manitoba close enough to me that i can handle management and minor maintenance.

Now the issue is as far as my knowledge is (which is limited) anything above 4 doors you need to get a commercial mortgage which i found 30 percent down at 6 percent 5 yr fixed. Another option i was told over the phone by a mortgage specialist was to list one appartment as storage (on paper) then change it to rental appartment after finalization. Sounds fishy to me has anyone here have experience with purchasing small appartment buildings?
Still learning about realestate any advice or critisism would be welcome.
Thanks Dan

 

[margaretcowan]

Last year when I was shopping for a new mortgage for my 5 unit house property in Nanaimo, someone said the Royal Bank would do it. I got my residential mortgage with the Royal Bank so give them a try.

I`ve also found over the years that when a bank wants your business, they volunteer to get creative with the facts about the property. Some things have sounded fishy to me but not to the bank! I never lie to the bank but I go along with them when they get "creative".

Margaret

QUOTE (Dan333 @ Oct 20 2010, 05:00 PM) Hi everybody, first time poster long time reader.
I recently have the opportunity to purchase a 5 door appt. building (4 2 bedrooms 1 bach.) by my calculations 8 percent cap rate.
Rent Income 35400
Operating costs 12390 (35 percent)
List price 289000
The building is in a good area in Manitoba close enough to me that i can handle management and minor maintenance.

Now the issue is as far as my knowledge is (which is limited) anything above 4 doors you need to get a commercial mortgage which i found 30 percent down at 6 percent 5 yr fixed. Another option i was told over the phone by a mortgage specialist was to list one appartment as storage (on paper) then change it to rental appartment after finalization. Sounds fishy to me has anyone here have experience with purchasing small appartment buildings?
Still learning about realestate any advice or critisism would be welcome.
Thanks Dan

 

[Thomas Beyer]

true op costs will be more like 20,000/year

thus, not an 8% CAP

some banks would give a residential mortgage .. usually 5 or bigger is commercial

 

[wealthyboomer]

QUOTE (margaretcowan @ Oct 20 2010, 10:24 PM) Last year when I was shopping for a new mortgage for my 5 unit house property in Nanaimo, someone said the Royal Bank would do it. I got my residential mortgage with the Royal Bank so give them a try.

I`ve also found over the years that when a bank wants your business, they volunteer to get creative with the facts about the property. Some things have sounded fishy to me but not to the bank! I never lie to the bank but I go along with them when they get "creative".
Margaret

Ah yes, RBC, the bank which is currently suing one of its mortgage managers for $8.9Million, for mortgage fraud scheme.

 

[housedoc]

QUOTE (margaretcowan @ Oct 21 2010, 12:24 AM) when a bank wants your business, they volunteer to get creative with the facts about the property.

How could that possibly turn out badly?

 

[kboughen]

Hi Dan,

I have seen RBC, BMO and Desjardin Credit Union, all do 5 Unit buildings at residential rates. Full disclosure is essential for successful real estate investing.

 

[rharrap]

QUOTE (Dan333 @ Oct 20 2010, 05:00 PM) Hi everybody, first time poster long time reader.
I recently have the opportunity to purchase a 5 door appt. building (4 2 bedrooms 1 bach.) by my calculations 8 percent cap rate.
Rent Income 35400
Operating costs 12390 (35 percent)
List price 289000
The building is in a good area in Manitoba close enough to me that i can handle management and minor maintenance.

Now the issue is as far as my knowledge is (which is limited) anything above 4 doors you need to get a commercial mortgage which i found 30 percent down at 6 percent 5 yr fixed. Another option i was told over the phone by a mortgage specialist was to list one appartment as storage (on paper) then change it to rental appartment after finalization. Sounds fishy to me has anyone here have experience with purchasing small appartment buildings?
Still learning about realestate any advice or critisism would be welcome.
Thanks Dan

In many cases, i`ve found that 5 plexes are actually legal 4 plexes which means that other residential lenders will look at them as well. Usually, commerical rates tend to be a bit higher (but depends on the situation), and often there are fees and other costs not associated with a residential transaction. Most of the time, if it can be done residentially, it saves you some money.

That being said, even as a legal 4 plex, not all residential lenders would be in the market- but definately more than as a legal 5 plex.
Feel free to call or email for more information.