Why is four apartments over two storefronts a commercial loan?

Mixed-use, used strictly, means one property containing two or more genuinely different uses with different lease types under them, most often ground-floor retail with apartments above. Loosely, brokers apply the word to almost anything with a commercial vibe, including a house where the owner runs a business out of the front room. Yours is the strict kind.

The 25 percent figure you heard comes from residential loan programs that cap how much of a building can be commercial, sometimes measured by square footage and sometimes by share of income. Those caps differ by program and they change, so the only version that matters is the one your lender puts in writing. At roughly half your square footage, you're outside every residential box I'm aware of, and no threshold argument gets you back in.

What you're shopping for is a commercial mortgage, usually from a bank or credit union that lends in your area. Expect a 5 or 10 year term with payments figured on a 20 or 25 year schedule, personal guarantees, and sizing driven by debt service coverage rather than your own income. Confirm the term, the amortization, and the reserve requirements in writing before you spend more time.

The part that catches people running thin margins is not the rate. Retail suites cost money to re-lease. Tenant improvements, a leasing commission, and a few months of free rent are ordinary, and none of that shows up anywhere in a residential pro forma. Budget a reserve for it from day one, because that expense arrives all at once.

At 3,000 sf of storefront against four apartments, you're buying a small retail property that happens to have apartments attached, not the other way round. Price the retail first. If those two suites are at $12/sf and market is $12/sf, fine, but if one is a legacy tenant at $7 you're looking at a rent roll that only works while he stays.

The appraisal is where I'd expect trouble. An appraiser doing this needs sale comps for buildings with a similar split, and in a small market there may be two of them from years apart. Ask the lender up front who they order from and whether that person does mixed-use regularly, because a weak comp set turns into a lower value and a bigger down payment right at the end.

Before anything else, pull the zoning for the parcel and find out whether the ground-floor commercial is permitted by right or grandfathered as a legal nonconforming use. Plenty of ordinances treat a nonconforming use as abandoned after it sits unused for six or twelve months, and the period differs by jurisdiction. If a storefront goes dark while you own it and the use lapses, you own residential with two empty rooms you can't legally re-let to a shop. I'd ask the zoning office in writing and keep the reply.

One roof, one boiler, one water line, two completely different sets of expectations. My headache on a similar layout would be allocation: the retail lease will say the tenant pays its share of taxes and insurance, and then you get to explain to a hair salon why its share of the tax bill went up 18 percent when it doesn't own anything. Get the allocation method written into the lease as a fixed percentage or square footage formula so it isn't an argument every year.

Also find out who's paying for the commercial dumpster, because on the buildings I look at it's usually the landlord by accident.

The part I still get stuck on is the balloon. If the note comes due in year five, the deal only works if the building either refinances or sells at that point, and the retail leases had better not all expire in year four. flint, do the lease expirations line up with the loan term on this one? That's the thing I'd want on a single sheet of paper.

How do you even screen a storefront tenant? With apartments I know what I'm asking for. Do you get business tax returns, or is it mostly the personal guarantee of whoever signs?