There is a HUD apartment for sale that has great numbers. The reason the numbers are so great is because the HUD program is only in contract to pay 60% or so of tenets rent for another year or so. That means the bank doesn't want anything to do with it.
1. If I buy this with cash somehow can I then refi the property with bank financing? I will ask the banker but this is in a remote place I was hoping you guys might have some insight.
2. From what I understand it is somewhat automatic 95% say that the HUD will re-up the contract. Has this been your experience or is this overly optimistic?
Whoops forgot to say thank you for the help!
I do HUD financing but I would need a few more details to answer your question. First to make sure I understand correctly, it seems that you are looking to buy a HUD-owned multifamily property that has a project based Section 8 HAP contract with one year left on the typical 20-year contract term. If so I think HUD-financing can be a better choice than the local bank, for once you will be able to work on increasing the rents as part of financing process, you will be able to get greater leverage (85-90% depending on how many units are actually covered by the HAP contract), you will also be able to use that same leverage to finance the improvements (if it is HUD owned there is a reason and most often I have seen it due to significant deferred maintenance). There are several other important questions that needs to be answered, like who is going to manage the property (regardless of whether HUD finances it), since HUD will want an experienced third party management company, as well as a few other requirements. If you have other questions feel free to PM me.
Thanks for the reply. This is not HUD owned but it has all HUD people in there. If HUD goes away so does the revenue at least I am assuming why the seller thinks this should be sold at such a discount. Based on the numbers right now and the place I would love to own it. But not sure if it is possible financing conventionally.
That is when it becomes on case by case basis, where you or your lender needs to talk to HUD and figure out if they'd be willing to renew. In terms of financing assuming the loan is over a million or two, you would be able to use FHA financing and while renewing the HAP contract simultaneously and underwriting to the increased rents. Alternatively, if the loan amount is several million you can also use Agency Financing (Fannie/Freddie) where you can finance it based on the rents in place now along with a restabilization reserve as a 7-6 arm. This will allow you to exit in a year with only a 1% penalty and refinance based on the new rent level. All these programs have various experience, net worth and liquidity requirements that need a more in depth conversation than this forum allows. You are welcome to PM me or call me if you want to discuss further.