Creative ways to buy large multifamilies

16 Replies

I'm looking to buy an apartment building/community with using mostly seller financing. For example, if a property is offered at 1,000,000, I would offer the seller full price with 100% financing, making interest only payments for about a year or so while I raise the NOI enough to refi at 75% and give the seller their $1,000,000 with the cash out. Has anybody had success in structuring a deal like this or something similar?

@Chris Wyche

Hi Chris,

Would you take that deal? I wouldn't!  Normally, seller financing involves a bank to provide the majority of the financing and the seller provides a "note" for either part or the entire down payment.  

Then it is your job to raise the NOI, refi and pay off the old mortgage and the seller's note. Google seller financing and look up articles on BP. I wrote a creative financing article here around a year ago and showed how we financed our first deal by using owner financing.

Gino

You can read up on Master Lease Options. I think you would have to get extremely lucky to find the right motivated seller willing to do something like this. In the current market it is even less likely to happen, but learn it and understand it really well so you can explain it to a seller and not scare them off.

https://www.biggerpockets.com/renewsblog/master-lease-option/

I would take it under the right circumstances. I am familiar with master lease options. That is another way to do it. Thanks for the input!

@Chris Wyche I agree with @Gino Barbaro opinion. In the current market, you will be hard pressed to find a motivated enough seller to go down the path you are thinking about. Furthermore, negotiating on price and negotiating on financing terms are two different things. 

I would suggest not going into deals being extremely over leveraged or having so much risk upfront. It would be better long-term for you to get a base level of capitalization going into each deal to help mitigate your risk. Murphy's Law always rears its head at the worst possible time :)

@Chris Wyche I’m not sure why someone would say “yes” to those terms. You’d have to show some heft cash reserves, money in a bank account for rehab, etc. And I’d want to see that you did it before on a smaller scale. Otherwise, well, I might inherit a 1/2 done rehab job on a property.

If someone puts $100K down, it’s 100,000 reasons you won’t walk away. If there’s zero down there’s zero reason you won’t walk away. That’s a little hyperbolic but you get the point.

So here’s the “appealing” circumstances. You pay $1M when the property is worth $800K. Yay for me, if it works out I got an unreasonably good price for the property. The catch-22 for you is that you’re taking an $800K property and have to get the value to $1.25M. So the likelihood decreases you can do that.

And, not for nothing, but commerical banked typically want things like “net worth equal or greater than the loan amount” and/or “9 months PITI in reserves. So (in 12 months) you need to change the NOI enough to build net worth, pay for rehab/improvements, and accumulate 9 months of PITI when you approach a commercial lender. But, in fairness, terms can be flexible and vary from lender to lender...those are just two common qualifications.

Thanks for the advice, guys. So you think it would be better to do a syndication to raise money? I'm a Realtor also, so I can use my commission as part of a down payment

You won't be getting any commissions. Listing brokers generally don't share any of their commissions to the buyer's broker. If there is even a buyer's broker the buyer normally pays that. If you don't have any capital at all, it will be hard for you to even do syndications, as most investors will want you to have some skin in the game.

@Gino Barbaro I like that a lot. I’ve heard it before but the way you said it made it click. Going to look more into the strategy as you described. Sorry OP I wasn’t much help, just wanted to comment and say thank you

@Chris Wyche I think you will have a very hard time finding something like that, but always worth looking and asking. The best that I have done is a Land Contract with 10% down. With the right seller, you may be able to squeeze 5%, but this is a hot multi-family market. 

@Chris Wyche Typically, Seller Financing [SF] on a somewhat large purchase would be feasible when the Seller is motivated to take the second position to a lender. When structuring SF deals, you should always have to think: what is in it for the Seller? In this case, the Seller isn't particularly incentivised to sell their building to you (unless they are a known acquaintance or family member). 

Consequently,  I'd suggest utilizing your resources (time and energy) in finding capital partners to help you take down a deal such as this. 

For instance, using simple maths, if you were able to raise $250k from capital partners, then you find a lender willing to fund the acquisition—70% LTV. Now, you may be in a better position to find a Seller motivated enough to carry paper for the 100k (assuming closing costs is about 50k). 

Hope this helps, Chris. Goodluck. Thanks! - Ola 

@Chris Wyche

Hi Chris

If you are committed to owner financing, then go for it and learn. I would not listen to anyone's advice that it can't be done. A pizza guy and a drug rep bought a 281 unit 11 million deal with no money down. Owner held 20% down payment,and we actually walked away with money at the closing. Should have seen the look on her face, confused!  It was not our first deal, and we learned how to do it and we had credibility.

We refinanced the owner out and now own the deal with no money of our own.

Read @jay Decima, Fixer Jay books. He is an excellent resource.

Best

Gino

@Gino Barbaro,

How do you get the credibility as a syndicator to start raising capital for a project?  I just listened to Brian Adams podcast on BP #136 and he was speaking on raising capital on these deals.  How does one really present these deals to the affluent and raise the capital without any skin in the deal?  I have one in Chicago, IL that I have been keeping an eye one for months and no serious buyers thus far.  Thanks in advance for your response.

@Linda Govan - Have you considered linking up with some of the big dogs on here, seeing how you can help and add value to what they do?  That's how I broke into the game- ride someone else's coattails for credibility.  Let me know if you want more details, I would be glad to share my story with you.

@Chris Wyche You know, you can always try to get a Line of Credit for fix n flip, find a MF building that needs work.  Then you'll only have to come up with 10% down, 5% rehab costs, then refi out after rehab.  It's better to start a financing relationship with a bank then spend time searching for Owner Finance.  

@Linda Govan I know sometimes inexperienced syndicators will team up with people or organizations who have experience (like your pm company) and when it comes to not having skin in the deal, sometimes that happens especially on someones first couple bigger deals. One way I have heard of people overcoming this is by having a partner who is putting in money and/or having the broker of the deal put in their commission. I'm not a lawyer and don't know the specific structuring of these deals, but I do know that has been done. This way you can go to your investors and show that the broker with X years of experience is putting in their commission because they believe in the deal so much.

I'm sure there are other ways to present to investors, these are just a couple ways I have heard of. 

@Chris Tracy,

That would be great to hear how you got started.  I am definitely taking in as much information as I can.  Please let me know when is a good time for you.  Thank you again for the offer.  Also, thank [email protected] Grant Rothenburger for your input.  I have been reading on other threads about this same scenario and it sounds promising.  

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here