Obtain a mixed-use development mortgage in Vancouver by working with commercial lending specialists

Firstly, you will need to pay for an appraisal, building condition assessment (BCA) and an environmental risk assessment (ERA). These reports must go into your mortgage application.

If you are buying an existing mixed-use building, your appraisal value and sale price will be different. The sale price will be based on the potential of future profit. Thus, it will be higher than its current value.

But, a creditor will only loan funds based on the current value of the building. In other words, you won’t get the whole amount, minus your down payment, from a mortgage lender. You will need to come up with the difference some other way.

If you need to buy bare land to secure a future development before applying to rezone it, you may have fees associated with the transfer of mortgage types, or the switching of lenders. You’ll also have to pay down a mortgage, or at least the interest on it, while you wait for approval on a rezoning application.

As a general rule, larger banks will only consider mixed-use development loans that come to a minimum of $250K. In other words, if you want to borrow $249K, and use your cash to pay for the rest of the property, a bank will not consider your application. This is because they won’t earn enough on interest payments from such a small loan.

By comparison, the minimum for residential mortgages are usually around $50K. And still, these rules can vary from lender-to-lender.

So, you’ll need to consider the cost of maintaining a mortgage, and the type of mortgage you’ll qualify for. This is discussed in more detail, below.

It will also be important to note that these types of mortgages can not be insured. Regardless of the type of lender, this increases interest rates, since it adds risk.

To learn more about how insured and uninsured mortgages work, refer to the explanation on this page (it’s about residential mortgages, but the principles still apply to commercial mortgages).

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Ok, so, let’s say you find the property you want to buy. At this point, there can be multiple bidders racing against you. Time is of the essence.

But, you don’t want to rush into this. It’s not wise. And, with a bank, you can’t.

This is because, if you need a considerable mortgage to purchase a mixed-use development property, you’ll need to make a strong case for it’s appeal to lenders (as noted above). Based on their requirements, you’ll likely work with your accountant, lawyer and real estate agent to complete some due diligence on the property in question. We explain the due diligence you’ll need to do, below.

Due diligence takes a long time to complete. We’re talking at least a month, or longer. While it’s true that yes, all other bidders will need to do the same, you won’t know where you fall in terms of who came first, nor who is ahead or behind you on their due diligence progress.

Let’s say you’ve finally got your reports ready, and the mixed-use property is still up for grabs. You just need the extra money to pay the seller. It’s time to apply for a mortgage.

Lenders themselves need time to review your reports. Since mixed-use developments come with far more regulations than ‘unmixed’ properties, their applications will, naturally, take more time to read through and analyze. And, legally, banks can’t just hand out mortgages whenever they want. They have to ensure they are lending to borrowers who match certain criteria.

If a lender can’t get back to you in a timely manner, someone else may have put in a bid on your desired property. If that other offer is approved, you’ll lose your spot in the ‘race.’ This is, of course, how all real estate purchases work.

But with mixed-use developments and commercial mortgages, the stakes are much higher. That’s because of all the work you’ll have had to put into the process, and the length of time the lender needs to approve your application. It costs money, and time to do this.

So, to speed things up, you may want to seek lenders who can respond faster, and be more flexible. The fewer terms there are, the freer you can use the funds, like any other type of business loan.

That’s where credit unions, trust companies and private lenders become important.

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Banks are federally regulated and must follow federal banking policies and guidelines. Credit unions and trust companies, on the other hand, are not banks. So, they don’t have to follow federal banking guidelines. They do, however, have to follow provincial lending guidelines. Still, provincial policies are more lenient than at the federal level (at least in this regard).

In short: credit unions and trust companies can approve commercial loans more easily, and quickly, than a bank. They will have less to review and check on your application, essentially.

Private lenders can be even more flexible. They set their own terms. They care only for:

1. Collateral (i.e. the value of the property).
2. Your ability to make monthly interest payments.
3. An assurance that you will pay that interest for a specific amount of time.

Learn more about private lender mortgages here.

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The downside to flexible loans from credit unions, trust companies and private lenders is that:

1. They come with high interest rates.
2. They must be paid back within a shorter period of time (around 1 – 3 years for a mixed-use development loan).
3. They can request a ‘lock in’ period, wherein you can’t pay back the loan to avoid interest, nor switch lenders (usually for a minimum of 6 months, but it varies). This is to secure their profit on interest payments.

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The idea here is that, after your mixed-use property has gotten off the ground, thanks to a flexible loan from a credit union or private lender, you can more easily demonstrate its profitability. If the cash flow is positive, and the legal compliances are in place, it will be easier to get approved for a loan by a bank.

So, for most people who go with a high-interest lender, the hope is that they can switch providers at the end of their term. If they can renew with a bank or credit union, they can likely get lower rates on their mortgage.

If you are planning to buy an existing mixed-use property, you will need to show two years of past and predicted future revenue on the building. This will come from the current landlord or owner.

Is there a multi-unit residential component to the building?

Does the mixed-used building contain only one commercial unit and one residential unit?

If you are hoping to finance the construction of a mixed-use property, you’ll have a much easier time if you have secured a lot that is already zoned for this use. If not, you’ll need to apply for city zoning and building permits beforehand, which can take time.

Does your building site need to be rezoned for mixed-use development?

Is the building site already zoned for mixed-use development?