Hello BP community,
So I am looking into a potential deal on a 4-plex where the seller will finance for 2 years since the listed price is slightly over what I can get with a conventional loan (haven't talked specific terms with the seller since this deal is just in the beginning stages). My question is how do I make sure I can refinance the property in the 2 year window that the seller is willing to carry. Just trying to do my DD before jumping into a deal I don't fully understand how it works. Do I need to improve the property/raise rents enough over the course of the 2 years that a bank will give me a traditional loan at that point?
You'd probably want to get with a lender and ask them how they'd prefer you structure the seller finance deal before you bring the refi to them. Always prudent to begin with the end in mind. Make sure the seller puts a lien on the title and records it at the county recorder's office for. Of course you'd need to qualify for the conventional loan so you'd need your credit, DTI, income, etc. all in order as well.
Maybe you won't be able to refinace. What if the market turns downward or rents turn downward? Generally a bank will not go by the income approach on a 1-4 unit (there are exceptions) so you are counting on the market going up to get a higher appraisal.
I would hae a plan B ready. potentially a private lender or credit line to make up the difference. In fact you mmight want to do that now have a partner/lender make up the diference between the amount the bank will give and what you need to put down.
I have to ask though, are you buying this just becasue you can, or because it is a good deal?
@Bob Okenwa Thanks for the input.
@Ned Carey It actually isn't a great deal with current rents and while under seller financing for 2 years but I am going for the value add approach here and long term plan. Rents are roughly ~$100 under market rents. I want to come in and add W/D right away to each unit along with some cosmetic improvements to warrant getting those rents up (over time) to fair market rents. If I would be able to increase the rents and then refinance after those 2 years into a conventional loan at a much better rate, it would cash flow about $175-$200 ish/unit/month at that point. Am I being to optimistic with my plan? As a newbie, a plan like this may not even be possible. Any insight would be appreciated.
@Ned Carey I’m going for the David Greene approach (I think it was him who said this a couple times in the podcasts). “It’s getting harder and harder to find good deals so you have to make a good deal.” Trying to come up with a plan to make this property a good deal in the long run.
@Brandon Knudtson - I'm curious what the current occupancy is. If you have all four units occupied for the next 6-12 months, the window of opportunity to add value isn't as big as you might want. Of course, that depends on how easily the upgrades can be made.