By: Ann Zeilingold
Real Estate Mixed-Use Properties DRIVING DOWN MAIN STREET in Monsey, we can still see a glimpse of yesteryear: One icon is the shopping center with Better Walking Shoes, with the storefronts at street level and the apartments upstairs. And who remembers the Monsey hotel, behind the building where RCDC was located — the hotel that for a small while was renovated into apartments? Interestingly enough, main streets all over this county were peppered with eclectic shops, period architecture and many of these buildings had residential apartments on the second and third floors. We still see a few such building remaining in Spring Valley, Haverstraw and Nyack. Since the value of commercial real estate exceeds residential value in business districts, and since zoning changes, we are slowly seeing this type of real estate usage disappearing. When it comes to financing a “mixed-use property,” a property that is part residential and part commercial, it gets pretty interesting. Mortgage loans for these types of properties are not covered under residential mortgage programs — except one program. That program is an FHA loan, with a renovation component. To fit the program, one residential unit needs to be owner-occupied, and the commercial space needs to be less than 50% of the property usage. One year ago, Phillip purchased a four-unit property with a storefront, for which he put just 3% down. He moved into one of the units. The problem was that there was nothing major to renovate. The mixed-use program is only for a renovation mortgage, and this building was in fine shape. He used his renovation funds to purchase new appliances for all four units. This type of program offers a low fixed rate. The next best options would have been a 10% down SBA loan, a program where the borrower has to use all or part of the property for an owner-occupied business. The loan comes with many
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When it comes to financing a property that is part residential and part commercial, it gets pretty interesting.
caveats, qualifications and a specific structure. Another option is a 25% down payment for a commercial type loan. These loans would have had an adjustable rate. Today, not many people are purchasing homes on our main streets to live in them. Recently, a residential home was purchased in a commercial area of Spring Valley. The owner is using the property for his business, since the zoning is commercial too. If the purchaser wanted to live in it, it could have qualified for a residential mortgage. The only problem to watch out for is that some mortgage programs require the local municipality to certify that if the home were to burn down, a residential property can be rebuilt. Residential properties in commercial zones may have a usage that is “grandfathered in,” which means that the zoning currently does not allow the residential unit, but because it existed prior to the current zoning, it can exist. Sometimes the local municipalities will not allow a rebuild of a property with the wrong zoning classification for the location. So the next time you walk down Main Street, look around, and you will realize that the financing of the buildings and homes you see have additional guidelines and restrictions that you may not have known about!
Published on Nov 14, 2017