I got myself into a bit of a pickle. I am in contract to purchase a 12 unit condo building for $2, 050,000. My building is part of a larger complex that also has an 18 unit building. The building is brand new, it is fully rented, and the cap rate is 7% (not to bad for utah). I assumed getting a loan for this project would be fairly easy given its solid financials. However, it has been a nightmare to find a good loan. Apparently all the commercial lenders have issues lending on this building because it is a condo as opposed to an apartment. The term i have become all to familiar with is "broken condo". I was wondering if any of you have advice on securing a good loan on this project? I can do 20-30% down payment.
If you could buy 51% of the units then you would have lots of control over the complex...?
I wish I could afford more units but 12 is the best I can do.
I would take it to as many banks as you can until someone told you yes. Jeff Knight with Rock Canyon Bank might be able to help.
@Leandrew Tirrellyes you are in a bit of a pickle... Lets start with the definition of "condo", are there 12 individual condos or do you mean a commercial condo complex where separate owners own apartments in a larger complex? If you are buying 12 separate "condominiums" as a package deal, you might be in trouble. Banks are finicky about lending to somebody in a situation where you don't control the HOA. The funny thing is that many banks won't lend to you if you control over 50% of the HOA either... I know this because I was in a similar situation where I purchased 4 condos in a small complex. I purchased the entire complex... Needless to say finding financing was not pretty and I ended up using seller financing to close on the purchase. You might want to reach out to B2R Finance and see if you can do a portfolio loan with them. I have never used them, nor do I know anybody who has, but they do advertise here on BP.
@Steven Bond might have new construction properties similar to the one you are under contract on.
He's selling them as four-plexes, not condos so that issue doesn't come up.
Thanks for the posts. I feel like I have talked to several lenders. The process is extremely frustrating because they always assure me that they love the project and that I am a well qualified buyer. I submit mountains of paperwork, it goes to underwriting, and after 3 weeks I am informed that they can't work with me.
I wish I could back out and buy another project that wasn't a "broken condo" but I would loose 50k in earnest money.
@Leandrew Tirrell First thing when you talk to the lender, explain the entire situation so that they are familiar with it. Ask them what the solution is. If they don't know, ask them to ask the underwriters.
You say it is part of a larger complex, and that is probably the issue, because you only can control your portion. Is the other complex owned by one person or individual owners? Maybe you can get some type of lot line adjustment that would allow you to have a legal lot that goes with your building and a legal lot for the other. If that is a solution maybe the other property owner will go in on costs.
I suspect, but do not know, that your problem is related to the owner occupancy rate. Lenders get really cranky over condos when the owner occupancy rate falls below a certain percent. The last time I checked, which was several years ago, the magic number was 60% owner occupancy.
I suspect, but do not know, that the owner occupancy rate of this condo complex falls below what lenders like, and that's probably why you're having trouble finding a cooperative lender.
@William Hochstedler thanks for your vote of confidence. @Leandrew Tirrell I can get you 7% without issues and will do my best to see about making up close to that $50k or I can also talk to some of my Utah lending partners about helping you in your current situation. Can you talk today? Personal message me. I've done over $75M in multi units the last couple of years.
@Leandrew Tirrell - What ever happened with this deal? I'm looking at a similar property in Texas.