Rental Property Investor · Grand Junction, CO · Member since 2019 · 57 posts · 34 votes
Hi All,
I am working on my third property and I bit off a big chunk to chew on. The owner is willing to take on a significant portion of the debt with a second position. I am having trouble finding a source of financing that will allow the second position. I have attached the worksheet for your viewing pleasure. I have read " Low or No money down" twice and seem to have run out of creativity. The sale price is 1.4M and the owner is willing to take on a second for .4M. I would be financing the 1.0 for a no money down situation. Am I smoking something here thinking I could get into a 24 unit deal for little or no money down? I ran the numbers with a 1.3 purchase price.
@Thomas Hundtoft you need to talk to several local commercial banks as they are all different and offer different types of options rates and terms. If they do not like the second mortgage then convert the seller to equity instead of a lein holder.
Will they stay on as a equity partner? Work out a buy out agreement with them in your operating agreement. If they hold equity in the deal they may not feel it necessary to hold the second position.
I am working on my third property and I bit off a big chunk to chew on. The owner is willing to take on a significant portion of the debt with a second position. I am having trouble finding a source of financing that will allow the second position. I have attached the worksheet for your viewing pleasure. I have read " Low or No money down" twice and seem to have run out of creativity. The sale price is 1.4M and the owner is willing to take on a second for .4M. I would be financing the 1.0 for a no money down situation. Am I smoking something here thinking I could get into a 24 unit deal for little or no money down? I ran the numbers with a 1.3 purchase price.
There are lenders who will allow a seller 2nd, but still require the guarantor to have at least 20% of his/her own funds. Having said that, they don't require seasoning of the funds so if you were able to get the money and then put that money in a bank account and get a bank letter saying you have funds to close, you would be able to close.
Finding a traditional commercial lender that will give you a loan with 0% down will be extremely difficult. Even a hard money lenders.
if the seller is willing to put on a second lien we could bring the first lien. Max leverage on a first lien would be 85% of the cost (normally 80% though). If the seller would be able to put a lien that is subordinate to the first then that could work and would help get that 15% / 20% needed.
I'm a commercial mortgage broker and it's our job to figure out creative ways to find financing. PM me if you want to chat further!
@James Johner How would it work with keeping the seller on as an equity partner? Would I be buying into their business with a loan at that point? I'm not sure how the structure would work.
It all depends. Essentially you would restructure ownership into a multi owner entity of your choosing and then “buy out” the equity partner on a previously agreed upon basis.