Commerical Financing Idea

3 Replies

I am meeting with 2 separate private investors this week. We are looking to step up into Apartment Buildings versus the SFH and 1-4 Unit properties we are doing.

The property in question is between 1.1-1.4M.  We barely have the money for DP and liquidity post closing. So I was wondering would a private investor be interested in this type of deal.

We put in 20% DP, the investor pays the other 80%.  They effectively becomes the lien-holder. They also get a 10% equity in the property.  Which essentially becomes a buy down over 10 years.  So the loan is 4.5% and the buydown is 1% for a 5.5% interest payment.  We pay this down until we reach 30%.  That is about 9.5 years which coincides with when we would need to refi anyway with a traditional bank/lender.

They would make $500K on the deal over the course of about 10 years. We place a provision that if we default they could essentially "evict" us.  Meaning we lose our DP and equity.  Then of course they could retain their own property management and basically keep all the profits for themselves.

Is something like this possible or is this too complex? Or most investors want more distance from a deal for various reasons because of liability.

@Christian Hutchinson Given the size of the deal, I would venture to say that this is too complex. You will have to present a more compelling reason based on quantitative (#s) and qualitative (partnership, long-term investment, your personal story) factors. 

@Christian Hutchinson Why not partner with the private investor for the down payment and capital reserves and just get a commercial loan at a low interest rate (4.25%-4,75%)?  If you  put in equal amounts of money you get more equity because you’re also handling the day-to-day operations and they are a silent partner.  Or they put in more than you but you both get 50/50 equity.  Or you put in nothing or close to nothing and they get an even higher equity percentage.  If it works out you can do 3 or 4 more because you didn’t use all of the private lender’s funds (or yours) on one deal.

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