Creative ideas for funding a deal?

Question

Hi BP community,

Me and my team have been investing for about year now collectively. We recently bought a 13 unit building in a downtown area. The lead was from a family friend and that friend has been doing real estate for quite some time. He has a very large portfolio but is getting to the point where tenants and management are not something he's interested in anymore. He called us up with another 13 unit building but capital is currently tied up in multiple projects. The gentleman is nice and open to some seller financing. I'm just curious what everyone thinks a good proposition would be for a deal like this, he wants to make it work just looking for a starting point that helps both parties. If he were to sell it he's looking for a little over $1 million, mostly comprised of 2 bedrooms and room for rental increases. Thoughts and guidance are truly appreciated.

Matt

Tom S. · Answer

@Matthew Marshall  A starting point would be 10% down, seller finances 90%, 5% interest, 20 year term.  Most likely the seller will push back with a higher interest rate or shorter term, or both, and you've got negotiating room.

The key is to run the numbers that it will cash flow at these terms.  Also make sure to get it appraised.  I'm not sure if a 13 unit in your area is worth $800k or $1.2M.  Finally talk to banks to see what it will take to refinance out in a few years.

Good luck!

- Tom

Eric Y. · Answer

Certainly, I'm not at this level so I'll just ask some questions.

Would he be willing to seller finance the down payment for a loan?  Would you be able to cash him out in a year or two by raising rents?  Would hard money work for this too?

Would he come on board as a money partner who doesn't have to deal with tenants but will just get money over time from you?

Do you have anything else of value you could offer as collateral for him?

Have you talked to local banks to see if they'll do cross-collateralization against some of your other properties where you have some equity?  Or can you take a loan against some of that equity?

You don't go into detail on rents or expenses and so it's hard to make a guess at what terms could work for you.

I hope it works out!