I asked this question on multi family forum but didn’t get a response thought I would try over here.
There is a great deal on a 20 unit apartment with a catch it is contracted with HUD. In order to keep this sweet deal rolling HUD will need to re-up the contract next year (there is 5 yr extensions apparently) if they don't the rents would obviously decrease quite a bit. I have two questions;
1. Is there a realistic chance of obtaining bank financing? Or is this a cash deal with the hopes of a bank refinancing it when there is a future contract with HUD?
2. Is the extension of a contract with HUD fairly certain or is this a pretty risky proposition? It seems pretty certain to me but I don't have any experience here.
Thank you for the help,
You should be able to find a bank willing to finance this deal. Depending on HUD rents compared to market rents the bank may require some special reserves in the event that the HUD contract isn't renewed. They may also need to determine what the HUD vacancy rate is compared to the market vacancy and require special reserves in the event of an increased vacancy. Overall, a HUD contract is actually a positive for a bank as it is a much more predictable source of income than regular renters.
For your second question I haven't had direct experience with HUD but everyone I've talked to has said that as long as you continue to meet their requirements that it is fairly certain. If you are questioning it talk to the seller and find out their contact with HUD and then call HUD to feel them out.
Hope this helps. Good luck!
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