 Buying a 4 Family (by Matt [NJ]) May 25, 2012 8:54 AM
 Buying a 4 Family (by BillS [CO]) May 25, 2012 10:18 AM
Buying a 4 Family (by John... [MI]) May 25, 2012 10:26 AM
Buying a 4 Family (by George [NJ]) May 25, 2012 11:14 AM
Buying a 4 Family (by George [NJ]) May 25, 2012 12:19 PM
Buying a 4 Family (by Matt [NJ]) May 25, 2012 12:26 PM
Buying a 4 Family (by Matt [NJ]) May 25, 2012 12:31 PM
Buying a 4 Family (by Matt [NJ]) May 25, 2012 12:35 PM
Buying a 4 Family (by George [NJ]) May 25, 2012 1:19 PM
Buying a 4 Family (by BillS [CO]) May 25, 2012 1:21 PM
Buying a 4 Family (by George [NJ]) May 25, 2012 1:32 PM
Buying a 4 Family (by AllyM [NJ]) May 25, 2012 1:47 PM
Buying a 4 Family (by George [NJ]) May 28, 2012 7:18 AM
Buying a 4 Family (by Matt [NJ]) Posted on: May 25, 2012 8:54 AM
Message:
State Specific Question About: NEW JERSEY (NJ)
I am presently buying a 4 family in NJ with an "owners suite". The property is fully rented but the owner has been negligent on the income potential of this property. The property has well and septic, and the owner has not yet seperated the electric for each unit, so, basically, the owner is paying for ALL the utilities. There is also attic and basement storage that's being used for free, and a barn...(yes I said barn) across the road that's also being used for free.
Now to my question. We are buying this FHA and my son is moving into the owners suite. Down the road, when my son moves out, can I rent out the owners suite? Would that make it commercial instead of residential? What are the rule differences? I believe the house can be rented commercial because there is a motel right next door. --69.248.xxx.xxx |
Buying a 4 Family (by BillS [CO]) Posted on: May 25, 2012 10:18 AM
Message:
Are you asking a zoning question or a lending question?
From a lending perspective, as long as people are living there it is residential. As long as the borrower is living there it is owner occuppied (lower interest rate). Once the loan is done as owner occuppied and the owner moves in and lives there for a period of time (usually 1 year) FHA really doesn't care. They have no beef if you then move out and rent out. It is not fraud nor will they call the loan.
From a zoning perspective you need to get that from the local authorities (read your zoning code). The down side is that if they change the code between the time you buy and move out you could be stuck.
Now separating the electrical may not be as easy as it sounds. I have found from a financial perspective that the cost to separate is rarely recoverable. But get a qualified electrician to look at it and give you a quote to do that. At times it is as simple as new panels and meters and others you need to rewire the whole property. Know what it is before you buy. Also current leases govern with the property so you may not be able to add the utilities or storage to the rent until you get a new lease. Also adding utilities may mean that market rent is a bit cheaper than when utilities were included.
Now the storage issue, typically zoning code does not allow storage to people not currently living on the property. Lots of locations don't enforce this but someone who is mad about losing their free storage might report you. Here again, if storage is not a part of the lease then rent may be a bit lower. Attic storage is iffy due to access and the risk of someone stepping through the ceiling. Depends on how it is finished. --75.160.xxx.xxx |
Buying a 4 Family (by John... [MI]) Posted on: May 25, 2012 10:26 AM
Message:
Weird. Technically, it seems like this is a 5-unit -- and I thought that FHA wouldn't do a 5-unit because that is generally considered commercial. I mean, we can call it a "4 unit plus an owner's suite" all we want -- but that just makes it a 5-unit, doesn't it?
I guess I'm surprised that you're able to get an FHA loan at all on this...
- John...
--216.111.xxx.xx |
Buying a 4 Family (by George [NJ]) Posted on: May 25, 2012 11:14 AM
Message:
Matt, I know exactly the property in question in "SW", yes it's a small world. It's a short sale for a very good reason. Make sure that you have plenty of money in reserves to take care of all that old peeling paint. Make sure you get a thorough septic inspection, there was an update of an added disposal bed, is that good enough? It's by a stream & plenty of ground water. The last septic I put in cost over $30K for a one family raised bed system, that was for material alone, I installed it myself. If that septic stops working, you'll have a BIG problem on your hands & the county health dept will come down on you. Make sure you keep enough money around to house these tenants in a hotel if the toilets stop going down. Electric heat? is it insulated at all? I doubt it. Electric heat is a very hard sell in a modern insulated building. I owned an old building like that one before the price of oil shot up, it cost me over $2k a month, that would be $3-4K a month now, about what the rents are. The taxes alone there are $8,500, the town will be making alot more money than you will on it. You have to test the well water periodically, that's a gamble there with that septic & the surrounding septics. That Town would be very rough to deal with for any zoning issues, I built new homes there and the surrounding area. That barn is great though. I'm not trying to rain on your parade, just sharing what my own concerns were & why I didn't take the plunge. The guy that owns it payed like $330K for it & lost his shirt. The asking price of $180K is still way more than I would pay for it "as is". --71.48.xxx.xxx |
Buying a 4 Family (by George [NJ]) Posted on: May 25, 2012 12:19 PM
Message:
I think that WAS a small motel many years ago, just another multi-family now. I doubt you'll ever see commercial for that barn. --71.48.xxx.xxx |
Buying a 4 Family (by Matt [NJ]) Posted on: May 25, 2012 12:26 PM
Message:
Thanks George for your input. Do you have any "inside" info on this property that I need to know? I had intended to get a septic test on this before I buy which is SOP for any septic. Whos said anything about electric heat? --69.248.xxx.xxx |
Buying a 4 Family (by Matt [NJ]) Posted on: May 25, 2012 12:31 PM
Message:
George, After reading my initial statement, I see your confusion. It's actually oil heat. --69.248.xxx.xxx |
Buying a 4 Family (by Matt [NJ]) Posted on: May 25, 2012 12:35 PM
Message:
Hi Bill-
The question I guess is neither a zoning or a lending question. It's more of a question regarding the rules of a 4 family, which is considered residential vs. a 5 unit which is considered commercial. what are the rule changes and/or regulation changes?
I've also thought the FHA guidelines stipulated that you have to live in the prpoerty for a year, but I have not seen any supporting documents that stipulate this. --69.248.xxx.xxx |
Buying a 4 Family (by George [NJ]) Posted on: May 25, 2012 1:19 PM
Message:
Matt, The electric heat thing stayed in my mind from the listing blurb, the agent claimed that would be a way to seperate the heating, because heating that place as the owner would be a killer.
I never got past the RRP / lead paint issues, a multi like that on a septic (that already had issues), the idea of a well there, the non seperated electric. So I never went inside the building, I pass by it enough to know it. I don't think the rents there are below market by much, so I don't know how much room there is to grow it from there & the taxes are too high. My main interest was the barn for construction equipment storage.
Do you live in the area? I'm only two towns away & have rentals in the area & PA, so it's in my backyard. My biggest concern is the septic, find out what the next step there would be WHEN that system fails & how much that will cost to change it.
I don't scare from condition, I've built complete new homes myself, renovated complete homes, etc. This is one of the few times that I passed.
--71.48.xxx.xxx |
Buying a 4 Family (by BillS [CO]) Posted on: May 25, 2012 1:21 PM
Message:
For loan purposes, the number of units (4 or less) determines whether the loan can be resold to Freddie or Fannie. I don't know how FHA fits in but I think their guidelines are the same on this issue. Any way, without the ability for the government to insure the loan then it becomes a different animal (ie commercial). Lending for "commercial" property differs depending on the use as well but that is up to the lender as they end up holding the loan.
Regarding the 1 year guideline, I would guess it is an underwriting guideline. I know a borrower that got multiple visits to verify they moved into a place they bought because they were investors and the property was a step down from where they were currently living. The visits were by the mortgage company trying to resell the loan on the secondary market to "prove" to the buyer of the loan that it was in fact owner occupied. Some lenders have you sign a paper saying you are going to live there for a year. At any rate it is all after you get the loan. The rub would come if you did not live there for a year and someone got hurt (loses money/can't resell loan). I don't think if you had a documentable reason (ie. job relocation) then they could come after you. The bottom line is don't commit fraud with the occupancy. --75.160.xxx.xxx |
Buying a 4 Family (by George [NJ]) Posted on: May 25, 2012 1:32 PM
Message:
Matt, I know it's oil heat & about how much it'll cost to heat it. There's plenty of old rental stock around where the rent includes heat around here, those rents aren't really any higher than those there. The other thing that is a negative for this kind of rental unit, "SW" a bedroom community, no real shopping in walking distance. --71.48.xxx.xxx |
Buying a 4 Family (by AllyM [NJ]) Posted on: May 25, 2012 1:47 PM
Message:
Here in NJ, in Mercer County, a four unit is already commercial. I just sold two of them last Sept. Insurance had to be commercial and I forget what all else. If you need a referral for insurance for commercial I can give you a place to call. It was the only reasonable one that I could find. --69.141.xxx.xxx |
Buying a 4 Family (by George [NJ]) Posted on: May 28, 2012 7:18 AM
Message:
I would think that any mortgage company would see a 5 unit building anywhere as being commercial, calling something a 4 unit with an "owners suite" would likely be deemed mortgage fraud. What other reason would anyone call that a 4 unit with an owners suite, that could/would be rented out as well? I've never seen that done before in my 20+ years of R/E investing.
--71.48.xxx.xxx |
Reply:
|
|