Financing For Legal Triplex Currently Operating As 6 Units.

[dansparre]

Hello,



Recently purchased a 6 unit building that is zoned as a legal non-conforming triplex in Hamilton. I was able to have the vendor hold a 1st mortgage with a smaller downpayment as I knew I was purchasing it very undervalued. I recently refinanced the property but had a tough time finding lenders who wanted to refinance based on the zoning. I would like to know if there are some lenders out there who specialize in more progressive lending and deals like these. The property is worth approx. $400K now and my new mortgage is for $300K or 75% LTV however it is an open term with 8.99% interest only. Would like to unload this financing and find someone who will lend at 75% LTV with a regular mortgage at decent rates. Hamilton is full of investment properties that are zoned DUPLEX and operate as TRIPLEX or zoned as 8 units but operates as 10 units. There has to be lenders out there who specialize in dealing with the types of investments.



Thank you for your help.

 

[Thomas Beyer]

Financing a $400,000 property with only 3 legal suites is tough unless your personal income is high enough to augment it.



Banks will likely use only 3 of 6 suites for income, but use all expenses like utilities, property taxes, management fees, insurance and interest to underwrite.



Even with 6 suites it is almost 70/door or using 3 it is over 130/door which is high in either case.



What is the NOI with 3 incomes ? With 6 ? What expenses are included here in this NOI calc ?



How old is this property ?



What does your mortgage broker say to that situation ?

 

[dansparre]

Thank you for your reply Thomas.



The NOI with all 6 units is $38,772/year and with only 3 units it would be $15,661. Those numbers include all utilities ie. gas, hydro, water, insurance, taxes. Property management not included. Property is over 50 years old. The issue I'm having now is that I bought it totally vacant, have spent the past 2 months renovating and now I am in the process of getting the units filled. So I don't have leases yet for each unit. My mortgage broker says that lenders avoid the deal because leases for each unit are not yet in place and therefor they are are looking at potential income rather that actual income.



I have no question that they will be leased soon, so when all those leases are in place and the income is verifiable will I have an easier time getting financing? Do you recommend any specific lenders or mortgage brokers who deal with these types of deals?

 

[housingrental]

To clarify - is it legal as a grandfathered 6 unit building, meets fire, esa, for this, and is registered with the city as 6 units? And the current zoning is throwing off lenders?

Or is it legal as 3 unit building only, and you have 3 illegal units in it?

 

[Thomas Beyer]

[quote user=dansparre]Thank you for your reply Thomas.



The NOI with all 6 units is $38,772/year and with only 3 units it would be $15,661. Those numbers include all utilities ie. gas, hydro, water, insurance, taxes. Property management not included.


Deduct 10% (of gross rent) property management for underwriting purposes, 5% vacancies and R & M of $4500/year !



Assuming a gross rent roll of $60,000/year with 6 units that would leave an NOI of about $27,000.



Using a DCR of 1.25 and a 4% mortgage for underwriting purposes and a 25 year amortization I arrive at about $350,000 for a maximum loan amount. So $320,000 or 80% of the 400,000 value should be no problem once leased up IF the bank accepts all 6 incomes.



[quote user=dansparre]when all those leases are in place and the income is verifiable will I have an easier time getting financing?
yes, absolutely.



[quote user=dansparre]Do you recommend any specific lenders or mortgage brokers who deal with these types of deals?
Any broker that knows how to deal with investment properties/investors.

 

[dansparre]

No it is not grandfathered in. There are 3 legal units and 3 units that meet fire code etc. but are not recognized units by the city. That is the issue I am having.

 

[dansparre]

Great information. Thank you Thomas!!!

 

[housingrental]

What happens to the extra three units if there future enforced rental licensing program in Hamilton?

What happens to financing, and then valuation, in future under this scenario?