Investor · Cleveland, OH · Member since 2011 · 603 posts · 130 votes
I am looking to buy an 8-plex priced at 325K.
I understand there is a strategy of asking for repair credit in order to lesson the amount I will need at closing. So in theory - I can offer 350K with a 25K repair credit - can I go for even more? I assume the issue I might run into is the appraisal but does the appraiser see the contract or will they just see purchase price of 350.
Syndicator of Large Apartment Buildings · Glen Mills, PA · Member since 2009 · 1k+ posts · 1k+ votes
7y
@Adam Craig yes you can go higher than the $25k assuming there are legit repairs/issues that need to be addressed.
For example I bought a 550+ unit deal and got money for down units.
I should caution you though...you don't want to be known as the person who "nickels and dimes" and pulls repair credits at the last minute or before closing.
Your underwriting (financial analysis of the asset) should account for some levels of capex.
Some sellers, myself included, don't want to work with buyers who pull the repair credit strategy.
I'd only ask for the credit if things really need repair (new roof, new HVAC, etc) and they have not been factored into the list price.
It sounds like you are wanting to do repairs, but don't have the money to do that and want to put those costs into your mortgage. Why not talk to the bank and see if you can get a separate loan?
Investor · Cleveland, OH · Member since 2011 · 603 posts · 130 votes
7y
The repairs on this property are minor - only cosmetic upgrades in the units themselves. I am thinking 5K per unit or 40K total.
I dont want to come in at the last minute asking for the credit - I want to make a strong offer that is at or over asking with a credit in the offer.
I am meeting a couple of my commercial contacts this week to go over the deal so bank financing for repairs is not out of the question. It just seems if I can get the seller to offer repair credit and or some seller financing it was make the bank financing easier.
Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
7y
Talk with your lender first. Most lenders will not allow a repair credit and will just lower the loan amount based on the net purchase price. It doesn't hurt to agree upon a credit, just be aware that the lender may not allow it for their lending in order to lessen your down payment.
@Adam Craig yes you can go higher than the $25k assuming there are legit repairs/issues that need to be addressed.
For example I bought a 550+ unit deal and got money for down units.
I should caution you though...you don't want to be known as the person who "nickels and dimes" and pulls repair credits at the last minute or before closing.
Your underwriting (financial analysis of the asset) should account for some levels of capex.
Some sellers, myself included, don't want to work with buyers who pull the repair credit strategy.
Good luck!!
Brian, that is awesome that you got a credit on a 550+ unit deal. What type of loan did you go with that allowed you to use a seller credit to lessen your down payment at closing? What was the loan to purchase in the end?