funding rehab of multifamily
5 Replies
- Investor · San Ramon, CA · Member since 2011 · 1k+ posts · 569 votes14y
Use Hard Money? That will be tough with a reputation behind you. At least when I contacted them most were looking to fund 65% of the purchase price and leave the 35% and rehab on my shoulders.
You could go the Government way. There are some programs especially for low income housing solutions but if you're able to make it through all that red tape you're a better man/woman than I.
Find a partner? Give someone an equity stake in the finished product by funding the rehab. Remember, 10% of a property worth $1M is worth a lot more to you than 100% of a property worth nothing.
Continue looking for funding sources... take out a loan against your car, 401k, life insurance, etc.
Your post is sorely lacking in details and those details are all going to be needed before anyone will take you too seriously. How much was the multifamily home? How much and what repairs are needed? What's the ARV? What will the rents be? What are your exit strategies? What is your experience in major rehabs?
- Plano, TX · Member since 2011 · 3 posts · 0 votes14y
Thanks Nathan!
My apologies for not providing more details. It is a 200 unit distressed property with an ARV of $3.2m, which 3 partners bought for 500k. We have rehab estimates at ~$4k per unit, which includes flooring, dry wall repair, electrical, plumbing and appliances. The rent for this property is ~$575. Unfortunately we don't have much of an exit strategy.We have experience rehabbing one other property, however that was relatively easier since it was 30% occupied and 6 months later is at 92% occupancy. We fell for this one since it was a great property with tennis courts, sand volley ball, 3 laundry onsite, club house opening out to a 40ft x 60ft swimming pool, kids play area, a soccer field and a green belt. However the property has been vandalized and hence needs a major rehab.
We have maxed out on our personal funds (savings, 401K, etc.) and therefore exploring government fundings and other partners for now. Hard money folks are lookng for a minimum of $2m to fund, which puts us out of consideration.
- Investor · San Ramon, CA · Member since 2011 · 1k+ posts · 569 votes14y
Your numbers are a bit... strange.
You're saying for $800k more you can have a property worth $3.2M... a total investment of $1.3M for a $3.2M value and you can't get an investor? Something seems fishy there...
I'm also a bit surprised by your $3.2M ARV. Given $575 in rent, assuming 50% expenses, your annual NOI would be just under $700k. You're pricing this at a CAP Rate of 22%?? I'm not sure about your area, but FMV around here seems to be more at 8% meaning you're underestimating your ARV by a factor of almost 3.
Also, what is your time frame for filling the vacancies? Hard money tends to want to move quickly. If it's going to take you 3 years to rehab and rent, that will probably make them nervous.
My recommendation, own your numbers a little better. Even to my untrained eye they seem a bit off. $4k a unit seems a bit low though there's probably some economies of scale given the size... $3.2M ARV doesn't "add up"... and you need to define the plan and schedule for the rehab and rentals. When will that $3.2M be "real" instead of simply potential?
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes14y
Government bond programs are very hard to get right now and most of the money is gone.
So you and 3 partners spent 500,000 DOLLARS purchasing a 200 unit at 2,500 a door WITHOUT lining up rehab to get the project performing and cash flowing??
I specialize in apartment buildings and that is the craziest thing I have ever heard of in my life.
If you didn't have the money to take down the deal all the way you should have gotten under contract and just assigned it.I can tell you that 4,000 a unit is a low number and to expect more per unit in rehab and a longer time line to stabilize.
What year was the building built?? Why did it go vacant??
What are expected rents for the finished project and rehab quality?? Any new building permits or zoning changes applied for now or in the future where new product will be competing with your rehabbed project??
I can show you deals where an investor bought a vacant building and is taking over a 6 figure haircut because the property is taking to long and costing to much to rehab.
Buying something cheap doesn't make it a deal.I have found that totally vacant buildings are much more of a challenge and the highest risk versus a building that is performing on some level.
- Plano, TX · Member since 2011 · 3 posts · 0 votes14y
Thanks Nathan and Joel!
Yes we found local general contactors (a self contained team of electricians, plumbers, flooring & drywall guys) willing to do each unit for $3000 + we budgeted $1000 for appliances. They are desperate for business and eager.My ARV was not right, I believe it is $4.2 at a cap rate of ~10%, and yes ideally this should be good enough for many investors to show interest in this project, but the issue is that we (the partners) do not have any past experience accessing the right channel of investors, not do we know how/ where to go about getting the right investors.
Our plan was to rehab 3 blocks (total 18 blocks) of ~8 units each in Nov/Dec, rent out in Jan and with the income start rehabing the others. All rehabs to be completed in ~1 year. Though this might sound aggressive, our belief is that this is possible since this property was 30% occupied 5 months earlier and 90% a year ago. Since the owner defaulted the bank assigned property mgmt company was only focused on sustaining the property during the foreclosure period, therefore leading to further deterioration.
Joel, no new permits for new buildings have been awarded per our knowledge. In fact new businesses are starting in the neighborhood. We are now exploring the state multifamily bond program, and also local banks with rehab loans as alternatives.
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