I’m working on a deal where the seller has promised to owner finance the deal for 18 months. I want understand how the refi could work when the term is coming due.
Does anyone know the typical seasoning period of multi family investments? At what point should I start lining up the refinance?
If you are planning to "add Value" and recapture some equity once seasoning occurs, then most lenders will want to see at least 2 years of seasoning to get to the new value. Under 2 years, the lender typically will look at (Purchase price Plus your additional capital in improvements) as your total cost basis and lend on that number.
I would start looking for lenders at least 6 months prior to your term ending. This will give you cushion if there are market shifts and allow you time to find suitable lenders to take it down for you.
It really depends on your lender. We have some locally that will refinance as soon as the project is done and renters are in place proving the income. Others want 6-24 months. Make some calls. One consideration, though: a lot can change in 18-24 months. If inflation starts to heat up, rates will go higher and banks may lose appetite for rentals. Don't paint yourself into a corner where you can't refinance and end up losing the deal that you put a lot of time, effort, and money into. Balloon notes are some of the worst things in real estate. Sure, they get you in easy, but ask anyone who lost their home in 2008-2009 how terrible those things can be. If you're going to insist on it, do everything in your power to have a way out if the world goes crazy.
Don't know the numbers but make sure you have 30% equity in the deal when you are ready to take out the note holder. There are some less than 12 month seasoning options but doing it right the first time makes it work.
P.S. And I don't mean the 30% equity in NYC that causes DSCR to be less than 1.25 because of low cap rates. Stress test your exit at 6.5-7%, 30 yr arm.
@Jeff Plotkin , are the lenders you are working with only offering adjustable rate mortgages?