Multi Family Tear Down-How to Finance

[Brice Craig]

I recently contracted on a 5 unit multi family apartment complex. I'll purchase it for $575,000 and the rent roll is $5,000/monthly. The value is in the land though so in a few years I will tear it down and rebuild a bigger apartment complex. The build will cost roughly $1,000,000. So eventually I'll be all in $1,600,000. I'm torn on how to finance this building??? Do I get a commercial loan on it now in the short term and look to refinance it later into a longer term fixed rate loan after the final construction project is done?  Is there anyway to get long term (30 years) fixed debt on the property AND be able to turn it into a tear down construction project? Does anyone know of any loans that cover the intitial purchase, construction, and eventual refinance?? Or am I on the right path just getting a small commercial loan now, working on a construction loan, and then hoping to refinance later into a longer term fixed. Anyways long time listener to the podcast and this is my first post. I hope it may help someone else out too. Thanks!

[Brent Paul]

Do you have 25% of 1 million to put down?  

There is a lot of work that goes into tearing a building down and putting in a new one.  There is no guarantee the city will approve it and the laws are different in every city and state.  In my city not only do you need a permit but every household within a certain distance of your building has to sign off on it.  Not to mention going to city council meetings, showing them plans, hiring an architect.  This could take a year or more depending on the city.  It took 3 months to get our new garage approved by the city. They kept making us revise things, etc.   Huge pain in the butt. 

Make sure you hire people that know what they are doing and have a good track record.  Check their references.