How to purchase 6plex with owner financing?

Question

How would you structure the purchase with owner financing of a 6 unit apartment complex. Would you do lease to own, land contract, etc. I would like to structure purchase to reduce down payment when I close or even better to take it to a bank to consider it as a refinance.....NOT PURCHASE WITH DP.

Thanks to all in advance.

Todd Dexheimer · Answer

If there is a mortgage, then a master lease or lease option. If she/he owns it free and clear, then Land Contract/Contract for Deed. I have done 2 of these in the past 18 months. One 22 unit building I put 10% down and paid 5% interest with a 25 year amortization, the other was a 10 unit with 5% down, 5.5% interest, 25 year am, with a 12 month balloon. Both properties needed some renovation and needed to be stabilized.

See the blog I wrote as well: https://www.biggerpockets.com/blogs/10145/65876-li...

Rod Khleif · Answer

@Freddie Williams

Hi Freddie, getting a 0% down seller finance deal is not unheard of. Without knowing any details of the deal, I'd suggest you see what you can do to make the monthly payments more attractive for the seller. For example if they are asking for 10% down and 5% interest, you can offer 0% down with 6.5% or 7% interest if the numbers work.

If you don't already know, figure out the reason the owner wants to sell and focus on solving their problems and building a strong relationship. It's possible, but it needs to be a win-win for both you and the seller.

Karen Schimpf · Answer

@Freddie Williams On a 5+ unit, many banks will either structure it as 5 year fix with a 20 up to 30 year amortization, so you might want to use the same structure.

For refinancing, if the loan amount is below $1MM, many lenders will use 100% of the appraised value,  of 75% LTV,  after you have owned it 2 years.  If the loan amount is above $1MM, and you have stabilized the property, you can wait 90 days for up to 80% of the appraised value.

I recommend getting a note servicing company (the note servicing company are not lenders, the seller is the lender) to make the payments to the seller for you.  The note servicing company will collect, manage and TRACK your mortgage payment, taxes and insurance.  This will help your be able to provide documentation to the bank that you paid on time.

As @Wayne Brooks said, you need to make sure the title is in your name or (preferably) your company name.  Who ever holds title on a property is the owner of the property.  Have a title company or YOUR Real Estate Attorney close the deal for you.  Do not use the sellers attorney to do what is in YOUR best interest, your not their client.

Freddie Williams · Answer

@Karen Schimpf Thank you for your advice. I definitely will make sure to send payments directly to the lender. Want to ensure that insurance, taxes etc is paid. @Rod Khleif I spoke to the owner his main reason to sell is because he does not have the time or money to keep up with the property. Property does need rehab but on a minor scale., nothing major except updates. I believe it a good opportunity because it is next to a university and is rented by students. Has a lot of potential.

Karen Schimpf · Answer

@Freddie Williams, if you are going to do a seller carry, I recommend you use a third party servicing company to make sure the payments are being applied towards the balance of the seller carry note.  This will also help you to be able to provide documentation to the lender.  This will show you have been making payments on time.  The servicing company will also collect for taxes and insurance and make the payments for you.

Personally, lease to own, is usually in the interest of the seller so that if you miss a payment they can take the property back over and sell the property again.  And @Wayne Brooks is correct, the owner of the property is the person who has their name in title, not the person that holds the note.  Talk to a Real Estate Attorney or Realtor to find out the best course of action.

Karen Schimpf · Answer

@Freddie Williams  The structure you are talking about is not a seller carry but a wrap.  I highly suggest you get the wrap approved by the lender, if you do not, the lender can call the note in or foreclose on you.  I'm a commercial Lender and an investor, I  can not advise you on Real Estate because I am not a licensed  Realtor.  My suggestion is to contact a Real Estate Attorney and have them help you structure the deal to protect you. I know it can cost money upfront for an RE Attorney.  Having a RE Attorney will save you money in the long run because they will prevent you from structuring the deal wrong. Once again, use the third party note company to make the payments to the mortgage lender, this could also be a selling point to the current lender.  And lastly, do not forget to title the property in your name. There have been situations on wraps where the seller took the payments and did not apply the payment towards the note.  Needless to say the lender foreclosed on the property.

Freddie Williams · Answer

@Karen Schimpf Thank you Karen for the advice. The property is a 6plex. Each unit will rent for 400k. Only half full (3 units rented) at 375 each right now. Owner has a loan for 89k. I negotiated 110k purchase, with 5k down 3 years rent to own. What would your suggestion be for this type of deal. Do you think I am going about it the right way. I would like for him to do a land contract or something to that effect, but he has an underlying note for 89. Thanks in advance.

Freddie Williams · Answer

@Todd Dexheimer Master lease? Its not free and clear it has a mortgage on it and the property does need rehab and stabilization. So the 2 you have done, they were free and clear?

Wayne Brooks · Answer

Yes, can't.

How to purchase 6plex with owner financing?

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