Owner/Occupancy Rate: Does it Matter?

Posted by urbandigs

Mon Jan 29th, 2007 08:49 AM

A: YES! If the Owner/Occupancy rate of the building you are about to buy into is less than 60% than it will raise a red flag in the eyes of most lending institutions which could lead to big trouble in getting a loan commitment letter!

Owner/Occupancy Rate:The percentage of units that are currently occupied by the owner or co-owner in the building, even if it is mortgaged or fully paid. The higher this percentage is the easier it will be to receive financing from your lending bank.

The thinking is this: If a building has most of its units leased out or occupied by someone other than the owner than the risk of a maintenance payment default is higher. Also, it tells a story about the building itself. Why don't owners want to live in this building? In the eyes of a lending institution, a building with a low owner occupancy rate is a higher risk investment that they may not be willing to lend on.

As a buyer, you should ask this question to the seller broker who is supposed to know what this percentage is. If they do not know, then ask them politely to find out. Some logic applies here as well; if the co-op doesn't allow subleasing than chances are the owner occupancy rate is very close to 100%.

UrbanDigs Says: If your intentions are to buy a investor friendly property (either co-op, condop, or condo) find out what the Owner/Occupancy rate is. If it is between 50% - 60% you should be OK although some banks may not lend on that building (be sure to give your mortgage broker the building address so they can check if the can lend on it). If it is lower than 50%, than buyer beware. Not only will you have trouble getting a committment from a lending bank, but you will have the same trouble finding a buyer when you go to re-sell. If a buyer's bank won't lend on your building, well then you are fresh out of luck and will have to lower your asking price to compensate.