Mortgage on residential property operating as small business

Hello,

Hoping to get some guidance on how to approach my unique situation. I'm in the process of purchasing an PPOR from a family deceased estate.

The house has a seperate small 2 room granny flat (without bathroom / kitchen) that is operating as a sole GP practice. The GP is moving as the house is being sold.

I've explained to two valuers that the GP is only able to operate as they are family members of the deceased, and as such cannot operate as a business without the main house, therefore upon settlement the rooms will be vacant. Both valuers won't conduct the a residential valuation, as its considered an operating business.

I've got a signed stat dec from the GP and the vendor stating the rooms have no tenancy agreement and will be vacant upon settlement date.

Settlement date is approaching yet I'm to find a way forward.

Regards

John.

 

Surely this is as easy as looking up for what its approved for currently with the council. Although I suspect it won't be in your favour.

 

Hi John,
Is the property zoned commercial or residential?

Assuming it's residential
What LVR do you need for the loan?
Some lenders don't require a full valuation and will accept contract value.
Are you using a Mortgage Broker for your finance?

 

Its possible that the sale contract has a ABN and GST is involved. The lender will see that as a black / red flag even if you are acquiring as resi use. This is a area where a broker may assist with dealing with the issue.

 

It has been operating as a GP Surgery since 1965, the valuer couldn't find anything at council stating it was approved, but couldn't be sure.

I said, so how am I to prove that something doesn't exist if you've already spoken to council and its not approved?

It's zoned as R3 Resi.
the LVR is 53% +/-

There are some other complications around the beneficiary (my mother in law) will be gifting us her share.
Contract value is > $3m so apparently in person valuation is required, from what I've been told.
I'm using a mortgage broker, but always like to have a few points of reference rather than rely on a single source of information.

 

What lender, what loan required, what purchase price?

Probably a solution but you need to talk to a broker by sounds.I had a similar one recently talked my clients the purchasers out of buying because of mixed use and difficulty with finance and resale..

 

Currently it is mixed use (but no documentation that states so, the only evidence is a google search on the address brings up a GP surgery), but won't be once we settle. Now I get that this is difficult to prove to a lender, but wondering what other information or documentation could satisfy a lender.

 

Arguing with lenders and valuers over this is fairly futile in my experience. Valuers will see it as mixed use because they don't want to get in trouble for not reporting something. The residential departments don't want it because they think it's commercial and the commercial guys won't touch things they think is residential.

If the title zoning is purely residential (not mixed use zoning), you might be able to get it through some lenders as a desktop valuation.

Otherwise perhaps a non-conforming lender for 12 months or one of the few that can do mixed use, then refinance to something more mainstream.

 

Thanks Peter, this was my thought process too, we do have a lender, with not a great IR, but a pill to swallow to get through the next 12 months.

Appreciate everyone's comments.

 

Which Lender?
Did they do desktop Val ?

 

Thats the issue they probably have issues with. At the date of the contract its a (partially?) taxable supply. How was GST addressed ? As Peter said the resi people look at it and shrug. They refer it to Commercial who ask about GST and also shrug. It falls on the floor as its a hot potato. I have seen many people seek a resi finance for mixed use premises and its a mess so they kick it aside and tell resi the same. No lender wants their buyer involved in a tax compliance issue as the property equity and cashflow is at risk. The lender will value it ex-GST (since no lenders will lend GST) and then you have a low ball value to address. By dealing non-arms length its making these issues less evident. Legal advice in drafting the sale contract would have avoided this if it was all explained and advice sought. It often isnt.

 

We have a contract of sale from the estate, it has nothing related to GST on the contract of sale.

I also found this morning (and I now have a copy of), that the vendor (before deceased) has a court judgement upheld against the council stating the land is categorised at "Residential" for the purposes of chapter 15 of the Local Government Act 1993, from the land and environment court

Not sure how much more categorical one can get than a court judgement.

 

This is confusing though. Why was it in court? Is the "residential" in reference to the zoning? Or was it in reference to its approved use?

 

Council wanted to change the categorisation for the purposes of rates, from residential to business.

It's always been zoned R3 residential.

 

The problem you're facing isn't to make a reasonable argument and work it through. Evidence doesn't matter. The real problem is you're dealing with multiple levels of beurocracy and reasonable arguments are not the metric they're working with.

The valuers will want to do a commercial valuation because if they don't, they might be sued by the lender if something goes badly wrong later. Odds are nothing will ever go wrong, but valuers insurance premiums are already ridiculously high, so why take the risk? They'll incorporate the worst case scenario into their valuation simply to cover their own backside.

Lenders will take the same approach. It is a residential property, but residential lending has very heavy oversight. Easier just to say no to the deal if there's any chance of a later interpretation with a non-residential component to it. Commercial lenders also say no for the same reason, they don't want to get dragged into that level of compliance.

In essence the lenders are saying they're aware that there's a tiny (perceived) risk to them, so they just don't want to take any part in it. Easier to decline the application and move onto the next one.

So it comes back to the start. Go to a broker, get it done via a desktop valuation where everyone is none the wiser about the doctors office. As you say, after you move in the doctor won't be there anymore so it's no longer an issue.

 

I think Westpac / st George will do a mixed use property at 60% LVR issue is their turn around times are atrocious. Not where Id send anything urgent.

 

Got a property in Noosa we are selling as Mortgagee in Possession which is 2 small Qlders side by side

One side is Tenanted although in a good breeze will fall down yet the Tenant is refusing to allow the valuer access.

We have asked the valuer to give us a valuation based off land value only as best use is clearly for development as it is zoned accordingly.

Valuer is insisting on going inside the units before he will carry out his report even though as the lender we have told them we are not valueing the building.

Sometimes valuers are not reasonable understand beasts.

Cheers


Richard

 

The costs to demo will impact a valuation. Very reasonable