Funding Down Payment of Seller Finance Deal
My partner and I have found a deal that includes 18 units for $1,168,000 with seller financing 25% down, 5% interest, 5 year balloon, 30 year amortization schedule. We need about $320k to allow for some reserves. We had an investor express interest, but he has never invested in real estate like this and got cold feet. We have since reached out to friends/family to see if they would be interested, but nobody has really committed. We're now trying to think creatively and would love some input. We thought about hard money.. wondering if there are non-traditional loans that fund down payments? This is a really great deal... we just don't have the down payment money secured yet.
To clarify: we do plan to put in some of our own money for the down payment, but we likely only have about 80k for that.
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Get the deal in front of real investors, not friends and family who don't understand what they are looking at.
I don't know of any way to come up with that extra $260k other than forming a JV (joint venture) with a couple of other local investors.
This spreads out the capital required, the risk, and the work. And if your deal really is a great deal, it shouldn't be too challenging to find partners even in this market.
I'd get the deal under contract and then call every investor, developer, real estate agent, and general contractor I know.
Hey @Janell Eisenhut - you can absolutely find private lenders to back this deal. Going through friends and family will be tough if you don't already have a track record. Clients are more likely to become friends than the other way around lol.
If I'm in your shoes, I would do a quick search online for DSCR lenders as well as private lenders that can fund bridge loans. There are a lot of them out there that can fund virtually anywhere as they're mainly private groups, not institutional lenders.
Yes the rate will be higher, but you can work out a unique structure with them for example to pay only interest for the first couple of years before refinancing, etc.
Good luck!
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I'd get my LLC and OA going. You want an OA catered to unrelated partner members that can be used more than once. My LLC names are generic-ish to the street name.
Then you offer memberships to people you know. This can extend to the people your people know. I'd ask my circle if they know anyone who would be interested....
Member offerings to the public- people you don't know- get into SEC securities laws from what I understand, so don't blanket advertise.
The hard part, finding the deal, is past so congrats!
Now you just have a $240k problem. I'd try to limit outside members to 6 @ $40k each. The fewer the better. Each $40k gets x% ownership.
Quote from @Janell Eisenhut:
My partner and I have found a deal that includes 18 units for $1,168,000 with seller financing 25% down, 5% interest, 5 year balloon, 30 year amortization schedule. We need about $320k to allow for some reserves. We had an investor express interest, but he has never invested in real estate like this and got cold feet. We have since reached out to friends/family to see if they would be interested, but nobody has really committed. We're now trying to think creatively and would love some input. We thought about hard money.. wondering if there are non-traditional loans that fund down payments? This is a really great deal... we just don't have the down payment money secured yet.
25% down is a pretty hefty amount for owner financing. The 5% interest sounds good in theory, but with such a big down payment as well the seller only giving you five years before in balloons is concerning. It sounds like it could be slanted more toward the seller than the buyer.
Back in the day we had a balloon on a property and we fixed it up to some degree and put in a brand new central heating and air and the seller insinuated that they would extend the loan if we were great payers. We paid on time, and we’re great players, but when we ask for an extension, the seller was screaming and hollering at us, and would not remotely be reasonable.
Wish I could help, great deal. Congrats on going for it.
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your profile says you bought a 12-unit - how'd you do that?
@Janell Eisenhut
Did you find a partner ? If not and available send me a private message
Hi Janell,
One option that might be of value for down payment/gap funding might be to get unsecured funding. It's out there and available from lenders who don't have as strict criteria as conventional banks.
Best,
Dave
@Nicholas L. I asked my realtor in the area to ask her coworkers if they knew of anyone looking to sell. She sent out a mass email to the company and someone answered back that they had a seller with a 12 unit. Before it went to market, I was able to go view it and had an offer in that day. What is really crazy is that I had driven by the apartment buildings many times and every time I did I thought how awesome it would be to own them... and then one day we did! For that, my partner and I put up more than half the down payment and family investors put in the rest. We self manage and it's going really well :)
@Chris Seveney This deal is on pause. We found the investors, but the day we sent the PSA to him, the seller said he had some family stuff happen and decided to hold off on selling. He said he would let me know first when/if that changes. In the mean time, we found another 12 unit in Indiana that we now have under contract with the same investors that we interested in the deal that fell through.
Lesson learned: even if a deal doesn't close, having potential investors already know what kind of properties you're looking, what kind of returns you're aiming for, and what your 3-5 year plan is can be really helpful when it comes to funding the next potential opportunity.
Thank you to everyone who responded to this. I will keep these ideas in mind for other deals down the road.
Hello @Janell Eisenhut,
It sounds like you have found a great deal on a multi-unit property, but are struggling to secure the necessary down payment. Here are a few options that you could consider:
- Partner with another real estate investor: Have you considered partnering with another real estate investor who has experience and capital? You could offer them a percentage of the equity in the property in exchange for their investment. This could be a win-win situation, as you could bring your deal to the table, and the other investor could bring the necessary capital and experience.
- Explore non-traditional loans: There are non-traditional loans that could potentially fund your down payment. For example, you could look into a personal loan, a business loan, or even a peer-to-peer lending platform. Keep in mind that these options may come with higher interest rates and shorter repayment terms.
- Use a hard money lender: A hard money lender is a private lender that specializes in providing short-term loans for real estate investments. These loans are typically easier to qualify for than traditional bank loans, but come with higher interest rates and fees. You could consider using a hard money loan to secure the down payment, with the intention of refinancing with a more traditional loan once the property is stabilized.
- Consider a joint venture: Another option to secure the down payment is to bring in a joint venture partner who can provide the necessary funds. In this scenario, you would be responsible for finding and managing the property, while the joint venture partner would provide the capital. In exchange, they would receive a percentage of the profits.
It's important to carefully consider the pros and cons of each option and to speak with a financial advisor or real estate attorney to ensure that you are making an informed decision. Good luck with your investment!
Hamlet
Connecticut investor.