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Real Estate What is the definition of an apartment?

Discussion in 'Real Estate Investing' started by yveskleinsky, Sep 28, 2007.

  1. yveskleinsky
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    yveskleinsky Bronze Contributor Speedway Pass

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    Kind of a weird and basic question, but here's where I'm at. I am looking a 7 plex (?)...it is really 2 duplexes and one triplex with shared utilities all sold together. Would would you call this property? Would this be considered an apartment? ...Since it would be considered commercial, would I be able to force equity like a person can in an apartment bldg.? Any thoughts?
     
  2. SteveO
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    SteveO Legendary Contributor FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR Summit Attendee

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    They are all apartments. A 4-plex is technically an apartment building. Some locations will call them flats. The difference is that an 4 units and less have the same loan programs as single family properties. 5 and over are commercial.

    You can purchase any of them below market but at some point the dynamics change. The lenders evaluate them differently if they are commercial. 4 units and less have a little more weight on the comps and buyers financials. The commercial still look at comps but now they look at buyer experience and financials of the property.

    5-12 unit buildings are in a difficult category. The lenders that like to do commercial tend to have lower limits on their loans. Sometimes you end up stuck using a local bank at a higher interest rate. The cost of appraisal and lender required inspections can get pricey and are harder to absorb into the smaller loans.

    This situation could be unique. Depending on the setup, you may be able to get 3 seperate loans and perhaps be able to sell each property individually.
     
  3. yveskleinsky
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    yveskleinsky Bronze Contributor Speedway Pass

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    Hi Steve-

    Interesting that regardless of the size a multifamily dwelling is considered an apartment and that the main difference is 5 or more. I also think it is interesting that once a loan is over a certain amount the interest rate really drops!- This concept has really blown my mind and how I look at deals. For so long I was looking at small deals because I was assessing a deal in terms of risk and my ability to obtain the property. Now I understand that the larger the deal, generally the less risk and the better terms! That's so awesome. Now that I've been thinking bigger, I've also come to realize that the bigger I think the more accurate my numbers and assessment of the property had better be. I'm still trying to wrap my brain around moving forward on a big deal (a deal with a debt service greater than my paycheck!) and who I need to be in order to make it happen successfully.

    Back to the cabins...From what I understand, all these units are on the same sewer line, gas and electric meter. I suppose I could get them seperated down the road and sell them as individualized duplexes and a triplex.

    As far as the loan goes, I'm thinking that since it is commercial and a small loan amount ($335k) it would be around 8.5%. I called the bank this morning and asked if I had the owner carry the down if they would loan on 80%. They said yes as long as the owner agreed to be in second position and not get paid until they do. I wasn't sure if they meant that I couldn't make payments to both the bank and the owner or if they meant that if I defaulted the bank would get paid first.

    I was thinking about getting a loan for 80% from the bank at the going rate (8.5%) and have the owner carry the other 20% with no payment for 2 years and at a decent interest rate TBD. I figure at the 2 year point I will be able to refi and pay him off.

    The 7 units are all cabins and I am still waiting to get some sort of proforma. :rolleyes:
     

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