what is commercial?
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As a general guideline 5 units/doors is the switch point. A fourplex will go residential, a fiveplex can go either way depending on lender and a 6 plex will go commercial. Ultimately the lender will decide, but this is the typical structure.
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Regards,
Ray Reuter
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QUOTE (REINteam @ Mar 4 2009, 01:37 PM) As a general guideline 5 units/doors is the switch point. A fourplex will go residential, a fiveplex can go either way depending on lender and a 6 plex will go commercial. Ultimately the lender will decide, but this is the typical structure.
indeed .. but some people call a multi-family asset "residential" and not "commercial" like an office tower, a strip mall, a trailer park or a land sub-division.
So it depends a bit on the word "commercial" !
indeed .. but some people call a multi-family asset "residential" and not "commercial" like an office tower, a strip mall, a trailer park or a land sub-division.
So it depends a bit on the word "commercial" !
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My local RBC branch manager and mortgage provider taught me yesterday: Financing up to incl. 6 homes = residential rates, above that "commercial" rates.
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Another definition, which Thomas touched on, is anything that is non-residential.
If you are talking about investment properties, over 5 or 6 residential units, it is often referred to as ICI, or Industrial, Commercial, and Investment.
So, it depends upon the context in which the word is used, and can lead to some misunderstanding.
If you are talking about investment properties, over 5 or 6 residential units, it is often referred to as ICI, or Industrial, Commercial, and Investment.
So, it depends upon the context in which the word is used, and can lead to some misunderstanding.
QUOTE (NorthernAlex @ Mar 4 2009, 02:34 PM) My local RBC branch manager and mortgage provider taught me yesterday: Financing up to incl. 6 homes = residential rates, above that "commercial" rates.
Yes, RBC will go with 6, while many others go with 4 doors
Yes, RBC will go with 6, while many others go with 4 doors
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QUOTE (bigbabba @ Mar 5 2009, 12:14 PM) thanks, ok so in many cases it looks like a 6plex would be considered commercial..what % of financing would they provide for this type of investment..in general.
up to 80% conventional .. or 85% with CMHC in theory ..
in practice: DCR is used, i.e. NOI / DCR = maximum mortgage
DCR = Debt Coverage Ratio
NOI = Net operating income, i.e. gross rents - vacancy assumption of 5% - expenses (taxes, utilities, insurance, mgmt. fee, R&M of $500-$750)
Expense assumptions are made by the bank with your input .. and range from $2500 to $4000/unit depending on bank and depending who pays utilities
DCR is as low as 1.2 for a great location, well kept building and big city like Calgary, GTA, Vancouver or Edmonton to 1.5 for older property or smaller town to 2.0 for out-of-town.
Amortization: some banks allow 25 years, many use 20 years, some 15 years which really cuts down the loan amount ! With a CMHC insured mortgage you can add 5 or 10 more years to amortization .. for a small fee of course ..
40 - 50% LTV is not unusual if you buy a property with low rents ! Hence: ask for a VTB and educate the seller, as the days of 75-80% mortgages are over in most cases.
up to 80% conventional .. or 85% with CMHC in theory ..
in practice: DCR is used, i.e. NOI / DCR = maximum mortgage
DCR = Debt Coverage Ratio
NOI = Net operating income, i.e. gross rents - vacancy assumption of 5% - expenses (taxes, utilities, insurance, mgmt. fee, R&M of $500-$750)
Expense assumptions are made by the bank with your input .. and range from $2500 to $4000/unit depending on bank and depending who pays utilities
DCR is as low as 1.2 for a great location, well kept building and big city like Calgary, GTA, Vancouver or Edmonton to 1.5 for older property or smaller town to 2.0 for out-of-town.
Amortization: some banks allow 25 years, many use 20 years, some 15 years which really cuts down the loan amount ! With a CMHC insured mortgage you can add 5 or 10 more years to amortization .. for a small fee of course ..
40 - 50% LTV is not unusual if you buy a property with low rents ! Hence: ask for a VTB and educate the seller, as the days of 75-80% mortgages are over in most cases.
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QUOTE (bigbabba @ Mar 5 2009, 02:14 PM) thanks, ok so in many cases it looks like a 6plex would be considered commercial..what % of financing would they provide for this type of investment..in general.
Same question, which I asked my branch manager:
Answer: Him with the RBC would quote round about 1-1.5% higher than comparable private sector rates.
Same question, which I asked my branch manager:
Answer: Him with the RBC would quote round about 1-1.5% higher than comparable private sector rates.
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QUOTE (NorthernAlex @ Mar 5 2009, 01:11 PM) Same question, which I asked my branch manager:
Answer: Him with the RBC would quote round about 1-1.5% higher than comparable private sector rates.
indeed .. but at what loan-to-value ??
Answer: Him with the RBC would quote round about 1-1.5% higher than comparable private sector rates.
indeed .. but at what loan-to-value ??
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QUOTE (thomasbeyer2000 @ Mar 5 2009, 04:19 PM) indeed .. but at what loan-to-value ??
Hmmm. I think, he used the same 25% down. But I admit: I am not sure!
`tschuldigung!
Hmmm. I think, he used the same 25% down. But I admit: I am not sure!
`tschuldigung!
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After some digging around with a few contacts, it appears that with CMHC they will lend up to 85% value in my area (Ontario)
I have a sub question: would it be worth while then to get a mortgage through RBC then if you were looking to get a 6 plex? You could potentially save the 1-1.5% intrest and have it listed as residential as opposed to commercial.
I have a commercial property free and clear right now and am having difficulty extrating equity from it as it`s "commercial"
I have a sub question: would it be worth while then to get a mortgage through RBC then if you were looking to get a 6 plex? You could potentially save the 1-1.5% intrest and have it listed as residential as opposed to commercial.
I have a commercial property free and clear right now and am having difficulty extrating equity from it as it`s "commercial"
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QUOTE (Brik8 @ Mar 6 2009, 05:52 AM) After some digging around with a few contacts, it appears that with CMHC they will lend up to 85% value in my area (Ontario)
I have a sub question: would it be worth while then to get a mortgage through RBC then if you were looking to get a 6 plex? You could potentially save the 1-1.5% intrest and have it listed as residential as opposed to commercial.
I have a commercial property free and clear right now and am having difficulty extrating equity from it as it`s "commercial"
CMHC has the following benefits:
a) much lower interest rates (sub 4% for 5 year money these days !!)
b) higher loan to value, up to 85%
c) amortization of up to 35 years, lowering your monthly payments
It has these drawbacks:
a) fees upfront (which can be added to the mortgage, so not out of pocket to you !!)
b) more conservative underwriting, so you pay a fee for, say 80% loan-to-value, based on their value assessment that may be deemed 75% by a bank or 70% by you/the appraisal
All things being equal, and assuming at least a 5 year hold I would ALWAYS ALWAYS use CMHC insured money !
You have to go through a bank. The bank should have CMHC experience. Some banks do, some don`t. You do not go to CMHC directly.
Or better, use a commercial mortgage broker, such as Montrose Mortgage which has an office in Toronto and most western Canada cities ! They will look at your deal, your income statements, your appraisal, and then suggest to go to bank "X" as some banks do loans over $10M, some between $1M and $5M, but not small towns, some don;t do 6-plexes, only 12 or bigger etc. ..
Get an appraisal, get a property inspection report and 3 years of financial statements and you`re good to go.
I have a sub question: would it be worth while then to get a mortgage through RBC then if you were looking to get a 6 plex? You could potentially save the 1-1.5% intrest and have it listed as residential as opposed to commercial.
I have a commercial property free and clear right now and am having difficulty extrating equity from it as it`s "commercial"
CMHC has the following benefits:
a) much lower interest rates (sub 4% for 5 year money these days !!)
b) higher loan to value, up to 85%
c) amortization of up to 35 years, lowering your monthly payments
It has these drawbacks:
a) fees upfront (which can be added to the mortgage, so not out of pocket to you !!)
b) more conservative underwriting, so you pay a fee for, say 80% loan-to-value, based on their value assessment that may be deemed 75% by a bank or 70% by you/the appraisal
All things being equal, and assuming at least a 5 year hold I would ALWAYS ALWAYS use CMHC insured money !
You have to go through a bank. The bank should have CMHC experience. Some banks do, some don`t. You do not go to CMHC directly.
Or better, use a commercial mortgage broker, such as Montrose Mortgage which has an office in Toronto and most western Canada cities ! They will look at your deal, your income statements, your appraisal, and then suggest to go to bank "X" as some banks do loans over $10M, some between $1M and $5M, but not small towns, some don;t do 6-plexes, only 12 or bigger etc. ..
Get an appraisal, get a property inspection report and 3 years of financial statements and you`re good to go.