Realtor · Manhattan, KS · Member since 2016 · 170 posts · 89 votes
Hey All,
I have an apartment complex under contract that the seller is willing to carry back the down payment at exceptionally favorable terms. Does anyone have any commercial lender connections that will allow the seller to take a second-position lien against the property? I have one lender that is going to try. He says that its possible, but difficult to present to the board. I guess I fail to see where the banks assume any real risk in this. To me, the seller assumes all the risk since he's loaning in second position, so I don't understand why banks won't touch this. Can anyone help? This property is in Kansas. Thanks!
Lender · Riverside, CA · Member since 2017 · 248 posts · 98 votes
2y
@Ryan Sajdera Congrats on finding a creative financing deal! If you want to reach out and share more deal specifics, I can spend some time looking at how I might be able to help. DM me.
Realtor · Manhattan, KS · Member since 2016 · 170 posts · 89 votes
2y
@Tarik Turner probably not. I just don't see why the bank cares HOW the rest of the equity arrives. I mean, the seller is willing to carry back 30%. What risk does the bank have with a fully rented apartment complex at 70% loan to value?
Lender · Riverside, CA · Member since 2017 · 248 posts · 98 votes
2y
@Ryan Sajdera Congrats on finding a creative financing deal! If you want to reach out and share more deal specifics, I can spend some time looking at how I might be able to help. DM me.
@Tarik Turner probably not. I just don't see why the bank cares HOW the rest of the equity arrives. I mean, the seller is willing to carry back 30%. What risk does the bank have with a fully rented apartment complex at 70% loan to value?
Just as an FYI Here are some reasons why over leveraging a property is an issue
Increased Default Risk: When a borrower has a high level of debt relative to the property's value, they are more likely to default on the loan if they encounter financial difficulties. This poses a significant risk to the lender, as they may not be able to recover their full investment if the property is foreclosed and sold.
Also take into consideration Decreased Cash Flow. High levels of debt can lead to higher monthly mortgage payments, which can reduce the property's cash flow. This can make it challenging for the property owner to cover operating expenses, make necessary repairs and improvements, or save for unexpected costs. Over-leveraging can leave a property owner with little financial flexibility.
Also in the case of needing to refinance the property down the line there will be difficulty in Securing Financing. Lenders are less likely to approve loans for properties with excessive leverage and might not meet the leverage max for most lenders
Realtor · Manhattan, KS · Member since 2016 · 170 posts · 89 votes
2y
@Tarik Turner Yes, that definitely makes sense and gives me some ideas of things that I can propose to the board. One proposition I made was that if they allowed the deal to go through, I would move all of my business banking over with them and keep my reserve accounts (50-80k) with them in savings. I see where the risk for default is high, and in this case, the rest of our portfolio can float the deal if things turn south. Is there anything I can put together professionally to present to the board? I was going to do 1.) a proforma and analysis on the property itself. 2.) A breakdown of all the assets currently owned by our company and the cash flow for each. And 3.) a structured refinance plan to cash out the initial investor thats keeping his down payment in the deal. 4.) A contingency plan if we have 3 consecutive months of negative cash flow.
The lender has a relationship and has done deals with both of us before. The seller has a few properties with them and I have some also. I just want to put a strong foot forward on this. Is there anything from your point of view that would help me make a strong case for this investment? Thanks for all your help and input! It is very helpful!