I now own my first apartment building, a 5 unit bought for cash (1031 exchange). After a rehab my property manager has it 100% occupied. Now I'm thinking bigger and looking around for another apartment building, maybe 10 to 20 units. Financing is the thing. Putting down 20% on a commercial property (10 to 20 units) is currently beyond my reach.
How can I acquire an apartment building with 10% or less down payment? I have not talked to hard money lenders yet. I have great credit, decent salary, and 3 rental properties with no mortgages. I would appreciate suggestions from you real estate pros!
Hi @Dave Pate this is a bit off topic but how did your 1031 exchange go? I've heard it can be tiresome and the IRS may not always recognize the properties being exchanged as "equal", therefore, not allowing it.
The 1031 exchange went very smoothly. As long as you follow the rules, and there are many, a 1031 is a great tax-deferral option. If you need a referral on who I used, message me.
A few thoughts:
- 20% usually apply to large projects that can be financed with Fannie Mae loans. With smaller buildings you will need to get a local bank loan that would require 25-30% downpayment depending on the the loan size and building income.
- You need to factor in your working capital and repair budget when calculating the total amount of cash that you need: e.g. 25% of $1M is $250K + $50K working capital + $100K rehab = $400K out of pocket.
- Hard money lenders may also finance your rehab costs but their rates are higher (10+%)
- You will most likely have a personal guarantee on a loan and because of that banks will want you have liquid networth in excess of the loan amount. So, for the example above you will need to have $750K in cash or liquid securities AFTER you closed on a property.
thanks @Dave Pate I'm glad yours met with success.
You can possibly have the seller carryback 10%, so you would not need as much cash to close. IE. Bank loans 80%, 10% seller carryback, 10% your cash. You would also need to find a lender who would allow this.
Congrats on the 1031 & recent purchase!
I would consider doing a cash out re-fi on the property you just purchased, or do it as soon as you can and use the cash as the DP on your next property, it beats the option of saving up a down payment on your next property.
Congrats on the purchase! I'm also looking to pick up a small apartment complex within 6-8months.
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