Greetings all, I just got accepted on a 16 unit apartment building and about to finalize the LOI with basic terms. The numbers work out to a 10 cap. In regard to Cash on Cash return, the seller is will to carry financing on a portion equal to the down payment a finance company would require. My question, can the amount the seller is willing to finance be considered the down payment in which case there is no out of pocket? Or do I have this concept misconstrued?
Additionally, 2 of the units were damaged by fire and have since been gutted and rebuilt and inspected by a civil engineer per the seller. There is more detail, anyhow I made the sell price contingent on the 2 units be brought to rent ready status..Is this the best move or should I buy as is and ask a reduction in price...having the units finished up myself as a value ad?
@Brenton Tigner Jr In regard to the financing, its really depend on your lender.
if the lender agree that the seller will finance the down payment so you will be in the deal with no money down. did you talk to your main lender?
Most lender do want you to have some skin in the game, typically 10% minimum.
If the units need work then you are likely to need cash to pay for the rehab.
Re the damaged units: you will need to fine out what it needs to get it back to code and rent ready. if you know that part then in my opinion i rather have the price reduction and do the work myself. this way you can control the process and time frames.
@hadar Orkibi to be honest, I haven't spoken with a lender yet, initially I was negotiating a master lease option but we couldn't come to terms. My credit is not where I need it to be in order to qualify for the loan.
The damaged units have already been inspected and pass code, but now they have to install the carpentry and walls etc...structurally everything is sound. I am still waiting to hear back from the seller as whether he is willing to let me by as is and renegotiate the price.
Brenton- does the seller know your credit will not allow you to get a loan - if your credit is bad a lender will most likely not approve you whether or not you have skin in the game. They want you to have skin and also sign a personal guaranty that they can go after your personal assets (doesn’t matter if it’s an LLC many lenders still require the personal guaranty if you default).
I haven't spoken with a lender yet, initially I was negotiating a master lease option but we couldn't come to terms. My credit is not where I need it to be in order to qualify for the loan.
@Brenton Tigner Jr Currently, NO lender will account for the seller-financing or will allow you to do it, easily. Hence, the zero % down game doesn't work. These were more common a few years ago but in today's market, I haven't come across a deal like this. I'm sure there is one out there with a willing lender but you'll be trying to find a needle in a haystack if you choose to go down this route.
As @Hadar Orkibi has mentioned, you will be better served getting a reduced price ideally in the form of a credit on purchase (this is a way better option). You can bring the apartments up to code yourself.
@Omar Khan Greetings, so as an update, the transaction has moved from seller-financing opportunity to a possible wholesale. The seller agreed to drop the asking price. Now there is a whole new set of skills I need to adopt in a relatively short period of time.
@Chris Seveney Greetings, the seller is not currently aware but I have mentioned to him that I will be seeking investors to help with the acquisition. The seller agreed to come down on the asking price of the property making a wholesale a possibility. I don't know anything about wholesaling so I am learning on a curve at the moment. I don't have much time, but I need to find out how to use a land trust for the wholesale and the proper offer agreement to use. Any advice in this would be appreciated for sure.
@Brenton Tigner Jr Let me take the conversation in a different direction.
What are you real estate goals?
Why do you want to wholesale this deal?
Couldn't you find a stronger partner? After all, you found the deal. There are plenty of people willing to get in the game. By partnering it helps you build valid credentials in other areas of real estate. If you live close enough to the property, someone who is out of state and has the money can offer to partner with you.
Something to think about.
Good Luck !!!
@Henri Meli I actually am interested in a buy and hold. The wholesale came up because the Master lease option we were negotiating fell through. I didn't consider a hard money lender as I figured my credit situation while improving, still hasn't reached the proper level(Assumption). I am looking for long-term wealth, I am not interested in wholesaling in particular. I am definitely going to explore these options you have mentioned. Thanks greatly!
I admire your risk taking by pushing through with the deal. However, you do not want to find yourself with a undercapitalized deal, it is a recipe for disaster. My suggestion is to have everything lined up prior to placing a LOI, this includes investors for downpayment, lender, insurance, property manager, etc. That way you go into it with knowing all the risks. Now, since you are so well advanced in the deal, I would contact my first line, meaning, family and friends and pitch it to them, I believe that is your best way out.
What’s your credit? Some lenders don’t care about your score but they’ll ask why it’s lower than you’d like.
Now is the time to find a mentor or someone who has done what you are looking accomplish. If you need 20% as a down payment, did the seller say he was going to create a second for that amount? If so, you only have to come out of pocket for closing costs. Just make sure the bank is okay with seller financing, which they should be.
I would have asked for a seller credit at closing, but since he is holding the entire down payment as a note, he would have to come out of pocket. Rent ready units is a terrific way, the only problem being that the seller may perform inferior work just to finish quickly and save $$$.
Greetings, thanks for taking the time to share. The seller is willing to carry an amount of down payment however, the broker I am working with said that it heavily depends on the lender and that typically the seller can carry 3% of the purchase price as down payment. I expect more info on this within the next couple days.
The seller estimates 60-90 days to complete the damaged units so I will not be closing anytime soon. Essentially I am just lining up financing and given that all due diligence comes up clean, I will be ready to close.
I also agree with you about finding someone that has done this type deal before. I plan to go to the local REIA meeting and share my situation with the group and despite the property not being in my state maybe I will find some individual/s ready to share their experience.
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