Hard/Private Money + Seller Financing for Apartment Complexes

5 Replies

Hey everyone!

Brand new to BP and REI in general. Excited to be here :)

Looking into creative financing for apartment complexes (30+ units).

Forgive my "noob-ish" curiosity, just trying to explore possible options!

Example scenario:

  • Seller is selling 30 units for $1,500,000
  • Seller is open to seller financing with 20% down payment (interest only + balloon,18-24 months)
  • Hard/private money lender provides 20% down payment + funds for repairs (interest only + balloon,18-24 months)
  • After a 12-18 month seasoning period, the buyer refinances with a local bank (portfolio) and repays the lender/seller 

The last step is made possible because in this example scenario the property appreciated through value add/market fundamentals, the buyer accrued 12-18 months of cash flow, the NOI increased (raised rents, etc) and the expenses decreased (sub metered utilities, etc).

Am I missing something? Is a scenario like this possible or am I crazy?

I have a feeling it's the latter but it'd be nice to hear from people with expertise on the topic(s).

Thanks and look forward to hearing your thoughts!

@Alex Olmer Welcome to BP! HML will require 1st position, so seller would have to be 2nd position. It is highly unlikely the seller will finance 80% of the purchase in a 2nd position mortgage.

@Tom S. That makes sense. What about using HML for the full purchase price and refinancing after 6-12 months? Obviously not the cheapest route but could be potentially viable for someone without access to other capital.

@Grant Rothenburger Love the Best Ever Podcast - listen to it almost every day!

@Alex Olmer Typically even a HML is going to require a down payment and unlikely to finance 100% of the purchase price, especially at the $1.5M price point.

Also remember you have to front the rehab money first, make repairs, get it inspected, and then you'll be reimbursed in a draw schedule.

Hope that helps to clarify,

- Tom

@Tom S. Appreciate the insight!

I'm looking into other creative finance solutions like subject-to/master lease options.

Seems like those may be a better fit for what I'm trying to do.