Looking to purchase a 16 unit for $500K...Need help with Creative Financing

[Kristin Whitfield]

Hi all 

We are looking at purchasing a 16 unit Building.  We have $20k to put down and I need some ideas for creative financing.  the property is a foreclosure and the previous owner purchased it for $750k.  It is well right now it is slightly bellow the market in Milwaukee .  I am a buy and hold , and want this for the long term

I am at a stand still cause I really don't want to contact my bank.  I need the challenge of figuring this out ...outside the the banking system.  I have great credit.  and I know the money is out there I just need to know where

Who do I go to to get the financing for the project.  It is cash flowing at this price.  

I thought about contact a hard money lender, but I am not sure.  I heard about Private money.  But I don't have any friends or family who have money to invest. 

Can you folks give me a couple of "tools" to put in my "tool belt" 

I want a Step #1 and Step #2 and Step #3 for the long term 

Thanks in advance 

[Jon Holdman]

How much are you going to pay?  Are you buying it from the owner who paid $750K or from a bank who repossessed it after a foreclosure?  Why don't you want to go to a bank?  Probably not "your bank" because most banks won't make this loan.  But some will and a bank loan is your cheapest money.  But a 25% down payment is going to be the minimum.  If the seller is a bank, then seller financing is off the table.  Taking on a partner for a significant portion of the down payment will mean giving up an almost equal portion of the returns.   Private money means someone you know.  Hard money might work to acquire the property but its short term.  For long term financing a bank is really your best bet.

[Eddie T.]

Jon is right a bank would be the best option but you do not have enough capital for down payment plus they want to see 6 months reserves. Hard money do not do long term loans. So from what I see you have 2 options. 

1. Find someone with alot of cash that will loan you the money at a high interest rate. 

2. Find someone to partner with who has the rest needed for down payment and sufficient savings.

[Will Barnard]

Jon is correct. Hard money is for short term and is expensive, most buy and holds will not support the costs of this high financing for an extended period of time.

Private money is an option, but also too expensive for the long term typically. Plus you would have to have already formed such relationships with people to form your own private money network.

I have no clue why you would not want to go to a bank for funding, for buy and hold, other than owner carried notes, this is the very best option. If you have good credit and the $25% plus for down payment! you are golden.

[Bryce Erickson]

I'm wondering would it work to buy with hard money and then turn around and do a re-fi with a bank to get the cheaper rates? 

[Kristin Whitfield]

I was wondering the same thing that Bryce is suggesting?  How would that even work,,,and how long do I have to wait to refinance?  What has to be in place to refinance? 

As part of that questions generally how long do I have to wait to refinance after we did some renovation to the building?   Basically it is going to be money loosing for the first 6 months, but once filled we will cash flow nicly

[Kristin Whitfield]

The answer Jon's question.  I am purchasing it from the bank who foreclosed on it

Then what I have been hearing is that "alternative " financing gives the flexibility to go much quicker and get more properties  

As far as a philosophical question, what is the "Hype" about alternative financing if the bank is the best option?

What about a SBA 7a loan for the building?

I know I have asked a ton of questions but I want to do the purchase correctly

[Ellis San Jose]

Originally posted by @Kristin Whitfield:

The answer Jon's question.  I am purchasing it from the bank who foreclosed on it

Then what I have been hearing is that "alternative " financing gives the flexibility to go much quicker and get more properties  

As far as a philosophical question, what is the "Hype" about alternative financing if the bank is the best option?

What about a SBA 7a loan for the building?

I know I have asked a ton of questions but I want to do the purchase correctly

[Ellis San Jose]

@Kristin Whitfield 

When a bank or large institution becomes the owner of an asset, the likelihood for " creative alternative financing" dwindles. 

The most flexibility and creativity is when a private party is selling the property.  Then you have more avenues available to negotiate a purchase.

This post would be the length of a football field to outline in detail step by step and educate you about commercial property acquisition, as you requested.

It would be best, IMHO, to work with a seasoned commercial loan broker to help you with all your lending questions. Also, working with a local professional investor would be invaluable to learn the ropes.

best of luck

[Ramon Jenkins]

Depending on the REO bank you might be able to

obtain investor financing for 15% versus 20 - 30%.

Example: Waterstone bank might finance property in-house for _% down with credit check.

Is the Property vacant?

Current occupancy level?

Otherwise try a portfolio lender.  

Hardmoney private lender route: purchase, rehab, & refi with a lender ASAP.

Most likely six months to two years - private money

Hard money - refi as soon as possible

[Jared Rine]

Being a CRE finance broker, @Jon Holdman hit it on the head and @Eddie T. ; his 2nd point making the most sense.  

You most likely need to find someone to partner with on this deal, go get a hard money loan (for the short term) to take the property down and then once seasoned about 1 or 2 years (how long you've owned the property), refinance your partner out with a bank loan.  

$20k will barely pay for the closing costs and loan origination fee on a $500k purchase, even from a bank, let alone rehab funds to get the property to a proper occupancy.

SBA is not possible to utilize for apartment complex investment purchases.  Can be used for mixed-use property if your business is going to be using the building.

Just my .02

Jared

[Kristin Whitfield]

Thanks for all the help guys

As Ellis San Jose  a "seasoned commercial loan broker" in the Milwaukee/Brookfield area?

I have had trouble finding teammates/resources in the area.  I wish there was a really good directory for finding the Commercial Loan Broker, Property Manager, Lawyer...all those people I know I will need

Thanks For all your helps guys

[Robert Musallam]

@Kristin Whitfield If no one jumps in to give you a specific referral, one suggestion I've heard of was to go to loopnet.com and search for commercial property in your area.  See if you can find the listing agents...then just contact them about some assistance.  Hope that helps and all the best in your search.

[Pete T.]

@Kristin to answer some of your questions-

The "hype" is to solve problems to alternative financing, usually to allow less cash out of pocket or when bank loans dont work

IMHO, I would continue to learn, but move on from this.  Im sure something similar has been done before, but I cant see anyway 25k gives you flexibility to do anything outside of a partner.

I would not look at the HML/refi combo unless you are sure of what you are doing bc-

-you will need to have equity to do so

-you may have to wait

-you might not be able to do it at all

Is there something special about this property that you are keyed in on this?

[Leng Thao]

Based on your situation, your best bet is to partner with someone who have both cash and/or the expertise you will need.
HML is unlikely given the lack of funds and long term rates usually not favorable.
As mentioned above, bank is best bet but that seems out of the question for you. This leads back finding someone to partner with. A piece of the pie is better than no piece of the pie imo.

[Ellis San Jose]

@Kristin Whitfield 

If Commercial property is going to be your focus, consider attending a CCIM event or other Commercial Real Estate Trade or professional organizations in your area and introduce yourself to various commercial brokers and lenders. I bet they will have a directory you can use as a starting point to build your network.

[Adam F]

You need more money. $20k isn't going to do much of anything. You need like $125k to play in these waters.