commercial downpayment equity question

9 Replies

My partner and I are looking at 6-unit apt. My cousin (wholesaler) is willing to hold the note 70% we pay him 30% and 10% interest monthly on the 70%. We plan to right away apply for commercial lending which will require 25% down. The challenge is paying 30% and then turning around and paying another down payment of 25% within 60 days. Possible to use the equity in the property if it were to appraise for higher than what we purchase it for as a downpayment. 

Technically the commercial application is a refi since we already own the property. I've been told we can't use the equity as towards a downpayment on a new loan but since we own it curious if that is different? I'm open to other creative deal structures or options. Thank you in advance for the words of wisdom.

I don't see why not. You don't pay a "down payment" with a loan, it's just an LTV requirement. If you pay off the existing lien with the new mortgage then you just need 25% in equity in the property, not 25% cash. So in other words, they'll only lend 75% of the property value after the current loan is paid off.

I am confused. You and partner put down 30% already?  And then you owe your cousin 70% with 10% interest? 

Now you want to refinance to get out of cousins hands?

Am I correct?

Well, here is my advice look at the numbers.....

Will getting it out of his name cost you more than the 10% you are paying him?

I mean if you refinance you will need skin in the game so that is your original 30% you will have fees and closing cost to the bank plus then you will have an appraisal and then finally you will have monthly payments.  What I guess I am asking is how much is this property. 

For instance, 100k property you have 70k owed to your cousin.  if you finance the 70k it will end up costing you around 82k and then it will be at 6% interest. Time value of money says that 82 k will be 112k over 15 years or something close to that.  If you keep paying your cousin is that going to end up being less or more.  I would be surprised if staying with your cousin is the best way.  
I  am not sure what your question really is.  

If you want it out of your cousins hands than you will have to do a refi.  you can do that two ways, refi loan or hard money.

I hope this helps.  If you have any other questions please tag me and i will try to respond. 

Originally posted by @Chris Smith :

My partner and I are looking at 6-unit apt. My cousin (wholesaler) is willing to hold the note 70% we pay him 30% and 10% interest monthly on the 70%. We plan to right away apply for commercial lending which will require 25% down. The challenge is paying 30% and then turning around and paying another down payment of 25% within 60 days. Possible to use the equity in the property if it were to appraise for higher than what we purchase it for as a downpayment. 

Technically the commercial application is a refi since we already own the property. I've been told we can't use the equity as towards a downpayment on a new loan but since we own it curious if that is different? I'm open to other creative deal structures or options. Thank you in advance for the words of wisdom.

You are doing a cash-out refinance and will not need a down payment. You will need to pay for appraisal and closing costs. You should be able to cash-out 50-70% of the newly appraised value, which would likely be a similar value as the recent appraisal.

@Michele B. Thanks for the comments. We are looking to making this deal work any day now...My cousin is the wholesaler and willing to sell us the property and hold the note. He will hold 70% of the $125k sale price. $87,5000. We pay him 30% ($37,500) and $729/month for interest. 9 month loan with balloon payment due in 9 months. 

We immediately apply for a commercial loan. One lender said they would lend on the property with a 25% downpayment. Paying my cousin $37,500 (his downpayment) and then in less than 30 days paying a lender 25% of the $125k sale price is a lot of money to fork out to acquire a property. 

In a perfect world, we would go straight to the commercial lender and purchase but since the property is wholesale, my cousin isn't going to hold the property for 45-60 days it will take to close on a commercial loan. 

My challenge is double downpayments. My other question is can we use the equity difference in the property if it were to appraise higher than the $125k. i.e. $30k difference applied towards downpayment if appraised at $155k since technically we would be refi'ing the property since we own with the purchase of private money. 

@Eddie LeGrand-Sawyer a cash-out refi makes sense since we own the property with private money. We would need to finance at least what we owe my cousin, 70% - $87,5000 to pay him back. And our cash would remain in acting as the "downpayment" on the new loan? Thank you!

Yes if you have it appraised at 155k and you only are borrowing 87500 then you will not need any more skin in the game it is just a refi.  If it is appraised at 155k then you could loan up to 116k if it comes out as 125,000 you can loan 93,750.00. IF you just want to loan the 87500 you owe him then it would need an appraisal at 110k. Does this help?  

Tage me if you have more questions