Purchasing 2 9-unit multi-family properties from same owner HELP!

8 Replies

Hi all, 

I'm making my first post, as I look at starting off in multi-family REI.

I have identified two properties that are being offered by the same owner in the midwest. They are not currently listed. They are being listed for a total of $1.2M.  They are cash flow positive (10% return on equity DP), in good condition, and sound buy-and-hold investments with long term upside (cap rates around 9.5).

My questions largely surround financing.  

I am a filmmaker and so have a very up and down income. Some years it's high, some years very low.  As such, I don't have the traditional steady pay of a "regular" job. I do have some cash saved.  I also have my mother, who is eager to help me with down payments and/or partnering so her current, regular income ($130K/year) might be applied toward my financing deal if we partner in some way.

We could form an LLC, and then try to get a commercial loan, but then it appears that our only option would be something in the 30% down and 5% loan range. We can manage 20% down, but 30% will be a stretch. We both have 800 plus credit scores.

So I'm appealing to the BP community!  Are there any other options that might be available to us?  Some thoughts I've considered but don't know if they are feasible:

1) Could I owner-occupy one of the apts in the two properties and somehow be considered for a residential loan that would cover both? In this case my mother would probably act as a guarantor? Would they require my mother (instead of me) to owner-occupy to qualify? Does it have to be her primary residence? (she is retiring next year but will maintain a $100K+ income from annuities and pension etc.).

2) A variation on the above idea might be to buy the two properties separately. I owner-occupy the more expensive of the two to get better terms there, and then we buy the other under a commercial arrangement. 

3) The owner was willing to do a land contract with a prospective buyer in the past, but that fell through and now he won't do a land contract (he is quite old and just wants to cash out). However, he does appear to be open to "creative" financing, and someone mentioned he might take a 2nd. Despite a bunch of reading, I don't know how that would really work in this situation, because, again, I would only be bringing 20% cash to the deal. 

Thanks in advance for any help/suggestions. I'm just starting out in this world but very excited for the future!  

Originally posted by @Christopher Za :

At 9 units each, these properties are too big for residential financing. Anything larger than 4 units requires commercial financing. 

In terms of creative financing, if the bank loans you 70%, you put 10% down, and the owner takes a second for the remaining 20%, that may be possible depending on the lender. I believe Ben Leybovich talked about using that method in his podcast. Whatever you do, make sure the numbers work first.

@Christopher Za you won't get the perks of financing for living in either of the units as they are above 4 units. They will end up being commercial loans either way requiring at least 20% down. 

I think you could approach the owner (who sounds tired of owning and managing) and see if he'll supply the down payment/contract for deed. Offer more of a partnership where you can be the manager and handyman while he is only the money partner. He'll receive his payments on time monthly, and if your screw up he gets his properties back having done no work and making money for it. Hope this helps.

deleted, question already answered

Originally posted by @Christopher Za :

Hi all, 

I'm making my first post, as I look at starting off in multi-family REI.

I have identified two properties that are being offered by the same owner in the midwest. They are not currently listed. They are being listed for a total of $1.2M.  They are cash flow positive (10% return on equity DP), in good condition, and sound buy-and-hold investments with long term upside (cap rates around 9.5).

My questions largely surround financing.  

I am a filmmaker and so have a very up and down income. Some years it's high, some years very low.  As such, I don't have the traditional steady pay of a "regular" job. I do have some cash saved.  I also have my mother, who is eager to help me with down payments and/or partnering so her current, regular income ($130K/year) might be applied toward my financing deal if we partner in some way.

We could form an LLC, and then try to get a commercial loan, but then it appears that our only option would be something in the 30% down and 5% loan range. We can manage 20% down, but 30% will be a stretch. We both have 800 plus credit scores.

So I'm appealing to the BP community!  Are there any other options that might be available to us?  Some thoughts I've considered but don't know if they are feasible:

1) Could I owner-occupy one of the apts in the two properties and somehow be considered for a residential loan that would cover both? In this case my mother would probably act as a guarantor? Would they require my mother (instead of me) to owner-occupy to qualify? Does it have to be her primary residence? (she is retiring next year but will maintain a $100K+ income from annuities and pension etc.).

2) A variation on the above idea might be to buy the two properties separately. I owner-occupy the more expensive of the two to get better terms there, and then we buy the other under a commercial arrangement. 

3) The owner was willing to do a land contract with a prospective buyer in the past, but that fell through and now he won't do a land contract (he is quite old and just wants to cash out). However, he does appear to be open to "creative" financing, and someone mentioned he might take a 2nd. Despite a bunch of reading, I don't know how that would really work in this situation, because, again, I would only be bringing 20% cash to the deal. 

Thanks in advance for any help/suggestions. I'm just starting out in this world but very excited for the future!  

 Nothing residential will work. Fannie/Freddie notes exclude anything over 4 doors, while a commercial lender will not lend to owner-occupant  because they don't want to comply with regs relative to consumer lending - that's the whole point for them is not to have to. 

Try to look harder. There should be portfolio lenders in Cincinnati who will do 25% down. Or, buy 1 building and do an option on the other. Improve the value of the first, and bridge that equity to exercise your contract on the second.  Or, see if the owner will carry, though not many banks will go for that without previous relationship...

Good luck!

@Christopher Za one option would be to bring on a money partner with a strong balance sheet to partner with you on the deal. 

Hi Chris, is there existing financing on the proprieties now? If so take subject to that loan or if he owns it free and clear... either way offer your 20% down, ask seller to carry for 10 years say 5% amortized over 30 years..If you think your seller is open to this let me know and I'll help out further

Wow, thanks for all of the help everyone.

@Anthony Gayden This sounds very interesting. I just started listening to @Ben Leybovich podcasts and lo and behold, he commented right here!  I'm a little unclear as to how the order of such a thing works.  Do you borrow from the seller first, and then take that 20% and your 10% to the bank to get their mortgage?  It also sounds like Mr. Leybovich is suggesting that a bank might not be willing to engage in this arrangement without a prior history with me.

@Steven J. I believe the current owner, who has had the properties for 35 years, owns them free and clear. As I said, I do think he's probably open to creative financing based on what I've heard from someone who has dealt with him; I just need to have the convo with his broker tomorrow to see what those might be --- and I'm talking to all of you fine people to get a sense of what kinds of things I can do!!!

Obviously, my ideal situation is to limit my down payment as much as possible.  

Thanks again for all of your help.  This site has already far exceeded what I could have hoped to have gotten out of it!

PS - if anyone has any other suggestions for particular podcasts which might relate to partbership structures or creative financing please do recommend!

@Christopher Za

It's true, it probably would be hard to do without some sort of experience, but that doesn't mean it is impossible. The only way you can find out is if you hit the pavement. Go talk to every lender possible. That's not to say it will happen, but you never know until you try. 

Also don't be afraid to admit that you have bitten off more than you can chew. If you lack the funds, financing, or connections to make the deal happen, you have to let it go. There will be other deals.

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