Tips, Advice, and Explanations from a Vancouver Mortgage Broker  

Commercial or Residential? How to Tell How a Property is Classified and Financed

Not a week goes by that someone doesn’t call me and want to finance a large house that has a lot of rental potential, but can’t get financing. “The bank says it’s commercial, but it’s not!” they often exclaim, “it’s just a large house with carriage house in the back!”

My first question: “how many units are there in the property?”

Their answer: “Units? do you mean suites?”


Their answer: “There is five but two of them technically share a kitchen.”

In the words of Shakespeare, “Therein lies the rub…”

Most people don’t know what classifies a property as Residential or Commercial, but there are a few things you can do to sort it out ahead of time.

First off, commercial mortgages (with most banks) require 35% down, so when people hear a property is commercial (and the rates are often the same as residential – maybe better) they get upset because it means it will require a LOT more down payment. Most applicants that call me about a large house with multiple suites, often want to buy it with only 5% down in the hopes of acquiring a large piece of real estate without the large monthly payments coming from their pocket. Much better to have the tenants pay your mortgage, right?

If only it were so easy.

What are the differences between commercial and residential mortgages:

1. Commercial mortgages require a larger down payment – typically 35% (some exceptions apply depending on property)

2. Commercial mortgages require commercial appraisals which cost around $2,500 and take up to a month to get

3. Commercial mortgage usually require an environmental report that costs around $2,300 and takes around a month to get

4. Commercial mortgages often have higher rates – though some ultra low rates are available – property depending

5. Commercial mortgages are often NOT acquired by just walking into your local bank – talk to a broker

So those are the reasons people shy away from commercial mortgages. Commercial “anything” seems to cost a lot more than non-commercial: commercial flooring, commercial lighting, commercial fixtures, etc…

Here are a few things you can do to determine if a property is commercial or residential:

1. What is the zoning? If it is zoned commercial or multi-family, chances are, it will require a commercial mortgage

2. Where is it located and what are the surrounding buildings? More on this below…

3. Most importantly, if it is a property that people live in, how many units or suites are in the property. More below on this as well…


Location and surrounding are important. Most cities have a “city plan” for an area or a development plan and they know the way they want to properties to slowly evolve in the future. For example, the downtown east side of Vancouver favours high density, multi-family, preferrably low-income, housing OR commercial. However, some areas of Strathcona feature more industrial and heavy industrial properties with some old residential properties mixed in. So if you want to buy one of those old homes because the property has “development potential,” that is great! But you will likely need a commercial mortgage if all the surrounding properties are commercial / industrial. In other words, just the specific characterization of the subject property (the one you want to buy) is not the only thing that matters.


This is the NUMBER ONE type of commercial property I get inquiries about: a large house with 4 suites and a carriage house in the back with 2 suites (or some combination of 5+ suites). All but ONE bank say that anything over 4 units is commerical and requires commercial underwriting and approval (appraisal, down payment, environmental, etc…).

Why four suites? I haven’t the foggiest of ideas why they settled on that number, but all but ONE bank in the city says that if it has more than four units, it is commercial. Who is that bank / lender / trust company? I only disclose that info to my clients as that is the value that I bring to the table as a mortgage broker, and I won’t give away ALL the secrets!

The fact is, no matter how long you’ve banked with them, how good the bankers treat you, or even the fact they know you by name and you’ve had 12 mortgages with them in the past 10 years means NOTHING compared to the security they take on your loan. The property is KEY! Borrowers often overlook it just because there are lots of other houses on the street and they exclaim, “they can’t all have commercial mortgages!” And they may be right! However, the reality is a lot of those older homes were purchased many many years ago and are occupied by seniors who rent out large portions of the house in order to earn income and often have the properties without a mortgage.

So, bottom line: if it has more than 4 suites, it likely will be a commercial deal.


Sometimes, if a property is a large fourplex but has two illegal, or unauthorized suites, we can keep the unauthorized suites out of the equation and the lender will treat it as a residential property. I say “sometimes” because that depends heavily on th borrower’s taxable income as often the deal requires the additional income from the two illegal suites to make sense to the bank, and if they don’t include the suites, they don’t include in the income. Ergo, the client must make money from another source. This is a very tricky exception to try and ask for, and it requires the coordinated efforts of a willing lender, a solid applicant, and a good appraiser to make these deals work. I have the connections to make these possible, so give me a call if your house fits this description or is being treated as a commercial property when you don’t think it should be treated as such.

SHARED FACILITIES (Kitchens and Bathrooms)

Whenever a house shares facilities, usually lenders will call it a “rooming house” and those are possibly the dirtiest words in commercial financing right now. Rooming houses are the hardest properties to finance in the city, period. I’ve financed properties that had environmental disasters, oil spills, fires, chemical storage, mechanic shops, but I have NEVER had as much trouble getting financing as I have with a Rooming House. The reasons for this are more political than practical, and stem from the fact that most lenders “securitize” and sell off their mortgages. However, the buyers of these mortgages will usually only buy CMHC insured mortgages (government backed and guaranteed). We can thank the US Sub Prime market for making them so squeamish… When the mortgage isn’t government backed or “insured”  the lenders often won’t do the deal because they know they can’t “Securitize” and sell off the mortgage for a profit and then re-lend their dollars. This is a rather complicated, behind the scenes topic, but the main thrust of my point is that Rooming Houses are VERY difficult to finance.

I have worked on rooming houses with 32 rooms, 18 rooms, and 42 rooms, and the made sometimes $20,000 a month profit, even after the mortgage payments! To the buyer, it sounds like a great deal! However, the banks won’t do the mortgages so the rates end up being 14% (or higher) with massive lender fees and only available through private lenders. This wasn’t always the case, but the mortgage market, like the seasons of the year, changes in predictable patterns. When the mortgage market was taken advantage of (sub prime in the US) now the lenders have tightened up and Rooming Houses are a very very difficult property to finance.

Borrowers or applicants are often heard to exclaim, “but it will make $5,000 a month profit!” but when we work out the 14% loan instead of the 4.39% they saw on the TD website, it actually doesn’t work out so well. You usual need 50% down, lots of other assets, and a damned good broker to get these deals done. I have a lot of experience in this field as I have fought and worked on countless of these files and know most of the rooming houses in Vancouver by name and location.

So, if you are considering a rooming house, make sure to give yourself 45 days of “subject removal” time and make sure you have a huge down payment (35% MINIMUM) as this is the only way these properties are being purchased.

I recently undertook an exercise whereby I went down to the downtown east side in Vancouver, and took down the names and addresses of 26 rooming houses and pulled the title on those properties. I found SEVERAL lenders I had never heard of, and after doing some further investigation tracked down the actual people behind these companies and now am doing a mortgage with one on a rooming house! This list of lenders is one of my competitive advantages over other brokers, and if you know someone wanting rooming house financing, I am their guy.

Until then, happy hunting!


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