BiggerPockets

I have zero money for down or any upfront cost. I need 100% financing to purchase this 28 unit in San Diego that is $500,000 below appraisal value. It is an immaculate building with zero repair. I can get the appraisal report as proof from broker. Any ideas or help?

Di Rich,

Please share the answers to nationwidepi's questions. We're all curious...

Di Rich,

The best advice we can give you is to stop looking for 100% commercial financing. Assuming you realize that you can't get 100% financing, but are actually looking to make money on this property without spending any of your own cash, here's how you might accomplish that:

Have your seller sign an assignable option containing the most favorable price and terms you can get. What you want to do is make this deal as attractive as you can. How much seller financing will the seller hold, and can you get him to offer attractive rates? Just having a current appraisal available showing the property being offered at ~15 % under FMV is a good start; better than so many others who are not dealing with a realistic current valuation. However, since there are so many other opportunities available these days, again, you need to make YOUR deal as attractive as possible.

What won't help is trying to use only about ~40% of gross as your estimated expenses going forward. Even if those numbers are accurate last year, most potential partners and lenders will estimate your future expenses closer to ~50% of gross. And, no one is going to be impressed with you not putting any money in the deal. What would you have to lose? Being realistic about where you stand, it certainly seems your best bet is to try to wholesale the deal and assign your option.

Yes, you could just try to find a JV partner; but since you are not putting anything in the deal yourself, you will probably find that a VERY tough sell. You can offer a large equity share and try to convince an investor you bring something to the table that should earn you the right to stay in the deal, but what would that be? If you like this deal, why not try to make money on it the easiest way, which is by collecting a finder's fee?

You can further increase the attractiveness of the deal by offering seller financing and/or high LTV private financing, so your end buyer can get into the deal without much out of pocket cash needed. Towards your goal of finding 100% commercial financing, below are the details of the closest to 100% financing you can currently find:

-100% Purchase and Rehab Loan - NOT FICO DRIVEN and Stated Income/Stated Assets, Non-credit score driven, but they do review credit, NO recent BK's, NO Foreclosures, NO Liens, NO Judgments allowed on credit, Up to 100% of project - closing costs and payments can be rolled in loan, Up to 65% ARV Rates starting at 11%, 1st rehab draw at closing , Can close in corporate name
Appraisal fee and out of pocket expenses paid at time of approval, 6 - 36 month terms $250,000 to $50 Million - Can be for multiple projects, not just 1 to reach min loan amount , States: Nationwide-

That kind of program would provide near 100% financing if you had more equity, or a higher ARV. However, if you combine that program with seller financing, you are getting closer to your 100% goal. In addition, there is another poster here on Bigger Pockets who offers commercial down payment assistance. Be aware, however, that I am not sure if our lender, or any other, will actually accept downpayment assistance, even when fully disclosed, which it must be.

Di Rich,

This is exactly why I don't shop for apartment units in CA. They are way overpriced. $2.7M for 28 doors = $96k+ per door. You would have to average over $1300 per month in rent per door at an 8 cap just to justify the ask price.

Also, your expense ratio is quite low for a 28 unit apartrnent complex. The tenants pay utilities is a plus and the income derived from the cell tower is also income without expenses (basically) so you could in fact be slightly below the 50% OE mark, but not by as much as stated. The seller is obviously leaving out some expenses.

It may well be priced comparably to other properties in the area. Doesn't make it a good investment. Its a loser from the cash flow:

Rent: $23,736
Expenses: $12,868 (something is missing from the stated expenses)
NOI: $12,868
Payment: $17,963 (7%, 30 year, $2.7M)
Cash flow: -$5,094 a month

So, maybe they're a speculative play, but it you have no cash, you probably can't afford to pump in $5000 a month. I think my loan terms are way generous for an appartment building with a reasonable down payment. Much too generous for any sort of low down payment deal.

Assuming Todd's correct about the value, you're paying retail. Hard to make any money in the business paying retail. $1,500,000 would make this a good deal. That would reduce the payment to $9980 making true cash flow $2889, or a little over $100/unit.