Board Topic: Commercial loan to convert shell to residence?
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Commercial loan to convert shell to residence?

Posted by: wendykei Nov 9 2004, 11:35 AM
I am interested in information on possible ways to finance the renovation of a commercial shell to meet city residential building codes (build bathroom, insulate for residence, etc.). The property is currently on the market and I haven't been able to make an offer because I'm trying to figure out how to finance this project. I'm not able to obtain a conventional home loan because the property doesn't have its certificate of occupancy yet, but one mortgage broker suggested that a commercial loan might be possible. I am "cash-poor"; my primary asset is the equity in my current residence. Any suggestions or thoughts about ways to finance this project?

Posted by: loanuniverse Nov 9 2004, 02:38 PM
Is this a construction in progress that fell into hard times? A CO is issued for both commercial and residential properties so my guess is that this is not completed yet, right?

Any lender is going to want to know why construction stopped… If you were to buy this property, would you be able to complete the proposed improvements under the permits or are they already expired? If they are expired, can you get new ones?

Or are you looking for some kind of “loft conversion” here where you are taking an existing commercial property and transforming it into a residential property.

Either way, you will need a good amount of equity involved, I am thinking about 25% at least {if not more}, which means that the equity in your home will need to be tapped.

The key here is that the loan will finance the purchase of the property and refurbishment, but eventually this short-term credit is going to be replaced by a residential mortgage on the house. Your ability to pull this off will be questioned.

Posted by: wendykei Nov 9 2004, 05:26 PM
Thank you for responding! In response to your question, this would be a loft conversion--it was not a construction project in progress... The developer left it as a vacant, commercial shell in a mixed-use loft development.

Just to clarify, are you suggesting obtaining a HELOC on my current property to pay for the construction, then obtaining a conventional mortgage? Or a commercial loan to cover the purchase price + construction, then re-fi to a conventional mortgage?

Thanks again!!

Posted by: loanuniverse Nov 10 2004, 02:54 PM
I think that the best thing would be to make sure that you can complete this "shell" for its originally intended use, and to make sure that you will be able to swing a rezoning to residential as well as permits to do the conversion. This due diligence includes but it is not limited to finding out if this property has a certificate of occupancy, and if it does not why not.

If all the questions give me the answers that I want then I need to start thinking how much I would need for purchase and construction, and the cheapest and safest way to go about it.

The easiest way might be to buy the property using a commercial loan, and use the equity in your existing home for the down payment and to fund the refurbishment. It avoids the need for construction financing, which might be a little harder to secure. But then again, that is just one way to go about it, and not necessarily the best way to do it since I do not know all the details or what the lenders that you contact may or may not offer. Look at this as a rough overview with limited information.

Posted by: Guest_wendykei Nov 12 2004, 11:38 AM
Thank you!

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