Ask for $50,000 from the seller? :)
I guess there are a lot of ways to tackle it. You could add it into a loan and pay the interest over time, you could do some kind of seller assist/seller financing deal that nets you the funds you need at a cheap rate, or you can buy the house for 40k less.
Bottom line is, if none of the above (whereby someone else takes the brunt of the damage and you leverage money) is possible, what does this do to the financial analysis for this property? Be prepared to walk away -- this is a flip at 40,000 in just "deferred maintenance" costs, in my opinion.
As an investor I try to nip future issues in the butt right at the beginning. Especially if you are planning on acquiring additional properties, otherwise you may run into a situation where there are multiple issues going on at several properties at one time and it could get expensive. My suggestion is to acquire property with a rehab loan and refinance after rehab is complete.
Your approach is correct. Identify as many of the deferred maintenance items upfront and include them in your initial budget.
How to cover the costs depends on how large the property is. When you say apartment, do you mean 5 or more units. If so, you are required to secure a commercial loan. Some commercial loan programs will include all or a portion of the renovation costs. I would contact commercial mortgage brokers and explain what you are trying to do. If it is 4 units or less, you can easily find a lender who offers construction loans.
But, as @Joe P. mentioned, make sure that the numbers still make sense.
@Justin Hertzog , Not quite enough information here to make a recommendation. $40k on a 300 unit property worth $14mm is not a big deal. Bottom line, adjust your purchase price to reflect the condition of the property. The type of loan you would need would depend on how much those deferred maintenance items would effect the appraisal and livability of the property. It may not be eligible for long term lending in which case a bridge loan with rehab included is very easy to come by. We have tons of clients who do this all the time.
I always include an inspection contingency which includes rentroll, financials, and the property. Get the property inspection done by a licensed inspector, go with him and get to meet your prospective tenants-your asset or nightmare-I get help from my tax guy with the financials. Once the inspection is completed you are in a much better position to negotiate. I provide EM by check to the title company.
Talk with banks and commercial mortgage brokers about a construction-perm (also called mini-perm) loan product. It is a permanent commercial loan at origination that has a 6-12 month (interest only) construction period that converts to permanent financing and amortizes afterward the construction period.
Nice work on matching your funding with the property plan. Under-capitalized properties are one of the primary sources of default.