Ideas for buying a $10 Million+ unit with NO MONEY DOWN
Hi folks,
I have a seller who is interested in selling an apartment complex worth somewhere between $10-$15M. Loan is assumable but I don't see a viable way for me to qualify on my own. It does not allow subordinate financing. And there is a prepayment penalty of $1 million. What are some ways to get this deal done without having my own cash to put down?
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get a listing and make a nice commission selling it to someone who can buy it.
defeasance clauses are tough
He's already got a realtor to represent him for the transaction and if listed.
@Anthony Dew Get a rich friend to partner on it with you is one possible avenue. But my advice would be to not do this, because I don't think you are ready for it or anything similar yet.
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Get creative, get divorced if you're married, then date and marry the owner, later take it in the divorce, then remarry! :)
If you don't have money you're not a buyer, any idea of what the engineering and inspection reports would cost.......guessing 10 to 20 thousand, title examination and policy aren't chump change, and not being closer on the value means an appraisal, maybe 5,7,10K don't know your area.
It's what I call elephant hunting with a BB gun!
Just list it and sell it, that may set you up for the next deal. Good luck :)
Bill thanks for your reply. I'll certainly take your words of wisdom into consideration. Although I am sure that there are many folks on here who have closed on properties without their own money; including myself. And I'm sure that its been done with $10M+ properties before. I'm hoping to hear from someone who has had a similar scenario
What the debt? What's the net cash flow with the current debt? What's the actual price? Why is seller selling? What's seller's basis? What is seller going to do with equity?
This smacks of a deal that needs a multi-year Master Lease-Option while you improve the value and refi it when you can...whenever that prepayment penalty goes away. You will need someone EXPERIENCED with running this type of property to partner with you to convince the Seller you are worthy of trusting his building to for several years. Perhaps a local apartment manager firm who will take a share of the equity and cash flow. If I were you, I would make the offer at full price (if there is upside) and put in the offer that you will have the #1 apartment manager in the area collect all rents, and from the proceeds make all payments on the underlying mortgage, to the seller's insurance company (you listed as additional insured), property taxes, and utilities. That way, the seller and you are both protected. Lots more needs to be worked out if you do this, but make the offer now with an LOI and see what happens. If they haven't sold it in two months, come back with the same offer.
Originally posted by @Anthony Dew:
Bill thanks for your reply. I'll certainly take your words of wisdom into consideration. Although I am sure that there are many folks on here who have closed on properties without their own money; including myself. And I'm sure that its been done with $10M+ properties before. I'm hoping to hear from someone who has had a similar scenario
It's definitely doable but you have to replace money with experience. Most people who are able to do these type of deals are able to convince their investors or the seller that they can make it a win/win situation. And they can convince people because they have a track record. And they most likely also have money too... a lot of it... just not the liquidity to do this specific deal.
Take the deal to a hard money lender, that will let you know if you're on the right track.
Great advice! @Mike Workman I've been researching some hard money options. Any good suggestions?
@Anthony Dew, I don't know of any HML that will lend $10MM and that too at a high LTV.
What is the current cap rate and what are the cap rates in your area for similar properties?
What makes this an interesting deal in your eyes? Is there a value add play here? Why is the current owner not capitalizing on it?
The property is probably owned by an entity (LLC, LP, etc). See what needs to happen for you to buy or at the very least gain managing control of the entity (assuming there is no clause in the lenders docs or operating agreement of the entity that prohibits this).
Its a long shot but you may get some valuable experience from this.
Originally posted by @Zach Quick:
@Anthony Dew Get a rich friend to partner on it with you is one possible avenue. But my advice would be to not do this, because I don't think you are ready for it or anything similar yet.
How can you tell he isn't ready, with all due respect. Donald Trump walked into bank's offices and asked for >$200MM loans, and got them. In his 20s. This was when his net worth was <<$10M. It just takes a deal and (for lack of a better term) cahones.
Originally posted by @Andrey Y.:Originally posted by @Zach Quick:
@Anthony Dew Get a rich friend to partner on it with you is one possible avenue. But my advice would be to not do this, because I don't think you are ready for it or anything similar yet.
How can you tell he isn't ready, with all due respect. Donald Trump walked into bank's offices and asked for >$200MM loans, and got them. In his 20s. This was when his net worth was <<$10M. It just takes a deal and (for lack of a better term) cahones.
President-elect The Donald might give you a gold star for your comment, but does Anthony sound like he's anywhere near to the same negotiating position, Andrey? "With all due respect"...
thanks for the comments @Brent Coombs and @Andrey Y. I'm just looking to hear about ideas and experiences. Just to clarify I am realtor, I got my license focused on the investment side although I have been doing a lot of traditional busy. Essentially I have acquired lots of investor and professionals who are experienced and I will definitely need to leverage their business& financial acumen to make it work. I know you're is going to be different but I just want to hear about your experience and how you made it work
Put it in front of your investors. They will tell you if you have a deal they would invest in or not.
The mind of the seller is critical in this transaction. The seller might be looking for a 1031 buyer who will pay a low cap rate to avoid taxes and park money.
When you syndicate you need a higher cap rate to pay a preferred return to the investor that is expected for a particular asset class in the marketplace.
For example if a preferred return is 8% to the investor on similar offerings from syndicators then do not expect investors at lower cap rates where the preferred return and upside is diminished.
If you are not familiar with syndicating look up Craig Haskell and the Value Hound Academy. Lot's of free videos etc.
Just from what you have side it seems like a pipe dream in the marketplace. Master leases, owner carry and all of that for MF was 4 to 5 years ago. Occasionally you might run across it but it's a sellers market across the country for MF.
Also when you say it is worth between 10 to 15 million that is a big difference! How are investors going to give you money as a syndicator and feel confident in your projections if the value is all over the place??
Update: I got a pledge of $1M from an investor I worked with in the past! Not there yet but that is a huge boost! Thanks for a your help and advice so far! 😂😎👍
@Anthony Dew, if you don't have the capital to take the asset down yourself than you will need to syndicate.
If you haven't done this before you will need an experienced operator to help you get the seller and your investors comfortable.
Since the debt needs to be assumed, a lender won't just transfer the mortgage to you, you will also need a loan sponsor. Sometimes the operator and loan sponsor are the same, but it depends on who you have in the deal.
Congrats on the mill from the investor, although a pledge is night and day different from the investor actually funding the deal.
Here is the most important thing, if you are syndicating make sure you get lined up with a good securities attorney before you get to far along.
Good luck on your deal.
"Master leases, owner carry and all of that for MF was 4 to 5 years ago."
Spoken like a broker in a hot market: "All cash and nothing else." This has not been my experience at all with <100 unit properties owned by Mom and Pops: They WANT cash flow/capital gains deferral/seller financing. They WANT to deal with the outcome/taxes in a future year. I almost lost a deal recently because I assumed the seller wanted cash offers, and he actually is willing to carry a note with 10% down for 10 years at 5%. (I'll put more down.) Of course, I'm not talking about listed properties, but value-adds I find myself through direct mail and networking. And, again, these are Mom and Pops, not big institutionally-owned properties. But just saying don't make blanket statemetns like "Master leases, owner carry and all of that for MF was 4 to 5 years ago." just because of your own personal experiences that may not match others.
That said, multifamily is the hottest investment going...a great time to sell or refi if you're the kind of person who times the market. But it sure seems bubbly to me, with all the newbies getting into it for the first time and all the shows and gurus offering advice that "anyone can do it." There are many complicated things like business and real estate that NOT everyone can do. Especially the 50% of the public who has an IQ less than 100. (Who now apparently vote in greater numbers than the other half.)
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Syndicators not only buy with none of the own money Usually but they get a nice fee up front to do it.
@Marc C. I believe had it right with the Master Lease option. I've yet to do it myself but am very interested to hearing if this works!
Is the owner willing to carry the entire note? If so, what's the current LTV, cap rate, occupancy, seller reason for selling, etc. ?
These are all questions anyone needs to know in order to give you the best possible solution for your scenario.
Best of Luck!
It WAS for the most part 4 to 5 years ago.
Today of course you can still find a situation where it works but it is MUCH HARDER at this point in the cycle.
There are owners who do not want to 1031 into something and will look at owner finance to take capital gains in small chunks. The key is not overpaying for an owner finance component to a deal.
Marc C. said it himself that he is putting in a personal time and energy to find this situation ( Of course, I'm not talking about listed properties, but value-adds I find myself through direct mail and networking. And, again, these are Mom and Pops, not big institutionally-owned properties.).
If everyone wants to (chase the cheese) looking for the unicorn in today's market that is fine just do not expect brokers to work on long shot stuff with little payouts.
This stuff was a lot more prolific at the bottom of market cycles as landlords had a headache and were not making any money. They figured they could dump a property on an investor with finance and if they did not come through and took back the property the cycle might be better by then to straight sale.
You can find remnants of various RE strategies to execute in almost any cycle it will just be very hard.
I just love vanilla deals. Buyer calls up and show financials with net worth of 6 million putting down 1,500,000 and buying a 5 million strip center at 70% LTV. That versus someone with little to no money trying out these wilder strategies and having to find the 1 in 1,000 owner who might consider it in an upward cycle.
Can you blame the broker for wanting to make the most profit in the least amount of time? That is what the investors do! lol As an investor and a principal broker I enjoy both..... : )
Hope everyone finds the deals they are looking for.