Tyler, TX · Member since 2015 · 25 posts · 9 votes
Buying a 9 unit below market value with seller financing. Adding 2 units to a current storage area and updating the property.. then refinance the property with a bank and pay off my existing seller financing note. Need advice on how to go about structuring this deal and and legal advice I might need. Thanks
Buying a 9 unit below market value with seller financing. Adding 2 units to a current storage area and updating the property.. then refinance the property with a bank and pay off my existing seller financing note. Need advice on how to go about structuring this deal and and legal advice I might need. Thanks
Have you negotiated and agreed on price, terms? Due diligence? Need more details here...
Tyler, TX · Member since 2015 · 25 posts · 9 votes
9y
Yes.. I will need to fill 2 units after close, but at 100% occupancy I will cash flow around $3500 as of now. My GC and I have already done a walk thru and made a plan of the things we're tackling first etc. It's a C+ to B- neighborhood. It has mostly home owners that live around the property... cap rate with the sales price I have it at is 18%.
What will the bank want to see when I go to cash out refi the property? I'm familiar with single families but it's much different on multi unit properties.. just need a little advice on what to plan on happening
Rental Property Investor · Charlottesville, VA · Member since 2012 · 1k+ posts · 726 votes
9y
@Rob Shipley sounds like a great deal how did you find it? I ask because it seems like the Dallas area is very hot for multi-family and it seems like most owners would be clued in to that.
To address your questions
"Need advice on how to go about structuring this deal and and legal advice I might need."
Should be a fairly standard purchase contract especially if there is no bank involved. One thing I would advise is researching the plan to add 2 units in a storage area. Go talk to the city building department about that to make sure it's allowed. There are often limits on number of units/land area.
"What will the bank want to see when I go to cash out refi the property?"
Be careful on your assumptions here. It will depend on the bank. Some will only want to loan you 75% of the price you paid until a 6 month- 1 year seasoning period. Some will want to see 12 months of stabilized financials with the 11 units. Talk to them ahead of time.
Make sure you have the money needed to purchase, build out the 2 additional units and carry you until you refinance.
You definitely need to find a local commercial lender prior to making the deal. When completing BRRRR strategy properties I find it essential to line up your Refinancing early as possible. Find out directly from them what they will need from you and the property. Remember the commercial lender will want 2 years Property Management experience (you or your PM). Do you have 2 years experience?
There are other differences in acquiring commercial verses residential properties. Your soft costs will be more. Appraisal, Inspection, Fire system inspection, and Phase I Environmental Assessment to name a few possible costs. Check with your county code office.
With commercial loans the terms will be shorter than you are use to. 15, 20, 25 years or maybe shorter with balloon payments. You might be better off keeping Seller Financing if you can work out reasonable terms. You wouldn't have to worry about meeting all the commercial lender requirements. Of course that would kill the BRRRR strategy. Just a thought.
Tyler, TX · Member since 2015 · 25 posts · 9 votes
9y
John Leavelle thanks for the info John! But this is considered residential because it's a Triplex, Fourplex, and another building similar to the Fourplex but the current owner turned the downstairs units into storage for his tools. I'm going to see lenders asap today actually. But even if I can't refi for awhile.. the property still cashflows really well.
John Leavelle thanks for the info John! But this is considered residential because it's a Triplex, Fourplex, and another building similar to the Fourplex but the current owner turned the downstairs units into storage for his tools. I'm going to see lenders asap today actually. But even if I can't refi for awhile.. the property still cashflows really well.
Are these 2 sepArate buildings?
If it's a triplex and a fourplex, that's considered residential.
Property Manager · Baltimore, MD · Member since 2014 · 1k+ posts · 1k+ votes
9y
If its is 3 separate deeds (for properties with 4 or less units) then you would need 3 separate mortgages and I would think that they could be residential mortgages. I strongly suggest talking with multiple commercial and residential lenders to determine your refi strategy before entering into any hard contract with the seller. As has bee noted there is a lot of uncertainty around seasoning period, commercial vs. residential, term, balloon, rates, soft costs, etc. that could make or break your deal. Sound like a strong investment though, good luck!
Rental Property Investor · Tyler, TX · Member since 2016 · 198 posts · 89 votes
7y
@Rob Shipley How'd this end up going for you? I'm in Tyler and saw your thread while I was researching something else. I'll send you a request too. Hope it went good.