Borrowers are doing their homework much more than ever with their expertise in computers searches and so forth but there are many aspects of the FHA 203k program that some think they can save a penny but doing it themselves then bringing in the consultant at the last minute to wrap things up.
I don't recommend this for anyone. There is a reason for the consultant and it is so important that you KNOW the program before you start making decisions that can bite you.
Example 1: You read the guideline on mixed use buildings and understand that there is a maximum of 4 units. You thing this could be one commercial unit and three residential units. That is what you read but you just didn't read far or long enough. It is a maximum of 4 residential units and commercial is relegated to the first level only.
Oops, that means we can have four residential units and in one Oakland property we did years ago we ended up with 4 residential units and four commercial units. The commercial units were small office spaces on the first floor.
If you "mis read" the guideline you might think there can only be 4 units total, just not true. A consultant would know this and guide you through the maze of regulations surrounding this.
Example 2: SF mixed use building on 3rd Street had a grocery store on the first level and three stories above. We converted it to 4 residential units that consisted of 2 4-bedroom flats, a three bedroom unit and a studio on the top floor. The owner inherited the structure where he had run a grocery story for quite a long time. This became his retirement and he was so thankful.
Example 3: Mixed use building with a full basement, two stories and an "full height" attic on the third floor.Commercial use on the first floor, storage in the basement, and four residential units above the commercial. CASH COW.
The program is primarily residential program of 1-4 units counting only the residential units. Regardless of what it may have be prior to the construction. Warehouse to live work, warehouse to residential units. SFR to duplex, duplex to SFR, Four-plex to a duplex, five or six units to a four unit buidling. eight studios to four 3 or 4 bedroom units.
What is the loan limit for a four-plex? Over $1.4MM till the end of the year. What is going to happen then is anyone's guess. HUD may reduce the maximum loan amounts and there is allot of speculation that we are likely to see a reduction in the loan limits after the first of January.
The bad news is that the new people at HUD have now decided to interpret the guideline differently than ever before. and now (12/13) they are interpreting it to be 4 total units "including" the one commercial unit, rather than 4 residential units plus the commercial.
This is not the way it has always been interpreted. Anyone working with commercial space understands that the lower level is all "tenant improvement" and though today it might be a single use, in a few years when the next tenant comes in they may only want half of it and the rent per SF may be higher making it to the advantage of the landlord to let them do it. If the people at HUD thought about this or asked the people who wrote the guideline what their intent was it may have been a more workable solution. Darn it anyhow.
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