Creative financing: 6-plex in need of full rehab in Kansas City

7 Replies

I have a friend whose father owns a 6-plex in a nice location of Kansas City, Missouri. He bought it when  the location was a D neighborhood but now its a solid C or C+ with a very promising future as it is located within 3/4 mile of the streetcar extension line. It needs complete rehab as it's had squatters living in it for the past couple decades. It needs new plumbing, HVAC, electrical; a complete gut. There are several 6-plexes within the neighborhood and rentometer shows them renting for $850-1000 per month. I'm pretty sure they haven't been updated either. 

His father is now wanting to sell however I've motivated his son to purchase it from his dad, rehab it, and hold it for cashflow. The father's been talking to an agent who says the plex is worth about $250k as-is and $500-800k ARV. If my friend could get a nice discounted price from his father, how would he go about getting funds for rehab? Would short-term apartment building financing or a government-backed apartment loan be the best route? He's never bought real estate but he wants get in now. I told him I have some capital to throw in the deal if he'd like to partner but I've never bought multi-family nor have I done complete rehab before.

My main concern is with financing. Are there hard money lenders who will lend $300k+ for multi-family investment to guys with good credit but with no multi-family or rehab experience? I've heard if you get a truly great deal then it's easy to get interest of others with money.

Any guidance or referrals are welcome. Thanks in advance!

Hi @Tom Sharkey sounds like you/your friend found an opportunity. Did you say that squatters have been in there for decades? That's crazy! Why hasn't he evicted them sooner? That's a lot of lost income.

I would personally approach his father with a seller financing agreement. Purchase the house, use a private/hard money loan to rehab it, get it rented up and then refinance it out into long-term debt. You will be able to find someone to lend you money, but I doubt it will be easy. It's more about the deal at that point.

Hi Lucas, 

 By squatters, I mean homeless people. His father bought it poor condition about 20 years ago and has done nothing with the property. So it has a history of being the building for vandalism and homeless people squatting there. He actually had two 6-plexes but one recently was burnt down. So he's just been paying property taxes, boarding up the the property, and likely city fines for upkeep.

The financing option you proposed is just what I was thinking before checking back here. Thank you. 

@Tom Sharkey if there is an opportunity to team with someone who can provide the funding for repairs - it would be ideal in this case.

Alternatively he can ask for a loan from his dad to cover downpayment $20/25% and once he gets the mortgage, he can lendingmore money from his dad for renovation. With rent of $850-$1000 he should be able to pay both loans to his dad fairly quickly.

What is your rehab costs? getting a loan on the property is one thing but the size of the construction budget maybe where the struggle with the lender may come in with an inexperienced investor

If the rehab costs are under 100k you have a better chance at getting the loan

The other option is just to get a partner on the deal with some experience and cash them out when it is time to refi 

@Tarik Turner , we're getting a well-trusted and experienced GC to estimate rehab cost within next several days. I'm pretty sure it'll be over 100k. Good call on partnering. That may be the route he'll have to go... I'll update this thread as the opportunity develops

Remember your GC's experience doesn't count as investor experience when it comes to rehab jobs
(Unless you two are partners)


Originally posted by @Tom Sharkey :

@Tarik Turner, we're getting a well-trusted and experienced GC to estimate rehab cost within next several days. I'm pretty sure it'll be over 100k. Good call on partnering. That may be the route he'll have to go... I'll update this thread as the opportunity develops

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I must add my 2 cents. If you do a deal you, your friend & his dad should partner. Then you pay nothing for purchase. His dad is invested in the building. You & your friend put up rehab money. Your in it much cheaper. Hold it resell whatever your end game is.

You sound like a beginning investor. I have been doing this for years in Kc.

I can not believe that any units will sell for for the value your realtor says. I believe that is a dream number on valuation. Only possible way I could see that in the best areas of Kc is if you do a super high end rehab. 

Your 100k or so rehab would likely not get a builder grade rehab done. By the information you gave you are looking at a complete rewrire, plumbing supply and drain. It will all be required to be up to code. This basically will mean it needs to be gutted. I see your 100k being gone there just to get mechanicals & sheetrocked. 

You will be doing all new windows, doors, a lot of framing because once you expose it you will have to fix it. 

Now you will need your finishes which will cost you 20-25k per unit to realize those numbers if it’s even possible. I’m seeing a minimum 250k rehab for higher end.

If you have even 200k in purchase & can sell for 100k per door it’s not a deal. With closing cost on both ends you will have 500k invested. 

I see similar listing selling daily for 60-70k per door rehabbed & tenanted. Like I say without knowing the location I couldn’t say for sure on a value but I think it would be tough getting 100k per door.