Bridge Loan / 9 Unit Apartment complex / Creative Finance

2 Replies


I have some experience with commercial loans on multi units; I have (2) houses on one (1) deed and another (3) houses on (1) deed. I own a few other SFH and TH rentals with a handful of flips , lien investments etc.

I'm trying to step my game up and purchase  my first apartment complex while  seeing how creative i can get with the financing. 

The Deal:

I'm doing the @David Greene thing and investing out of state (even if its only 90 min away). I'm hoping to close a 9 unit apt complex in a C+/B- area in West Virginia that was renovated in 17'-18'; The purchase price is. $350,000 at a 15-16% (projected) cap rate with room to expand the net a few ways (storage units, coin laundry, coin laundry detergent dispenser, delete the cable that is included in their rent *never heard of that one*, possibly a soda and candy machine in the laundry area since there is no convenience stores nearby etc); With all of these changes I'm hoping to push it to a 18-19% cap rate. Since it was renovated 17'/18' there was less cashflow for those two years while each unit was updated/renovated. The 1099 shows Net income of $23k with vacancies. Currently fully rented for $65k gross and $55k net (projected). Capital expenditures are minimal with the the recent reno and a property manager told me they'd be easy to rent and may be able to slightly increase them by a few bucks every month. 


I have a good relationship with a local credit union that handles a few loans for me along with a LOC . They informed me they'd loan 80% with a 3/1, 5/1 or 7/1 arm with a balloon at 15 years on a 25 yr AM. schedule.  (rates between 6% and 6.75% with .5 point) My monthly expense would be around $2500 and cashflow about the same.

I have the $ for the other 20% + closing but want to keep my up front costs as low as can be then recover my out of pocket from cash-flow (and hopefully increased cash-flow from being creative as mentioned above). 

Here is the idea i have: Have the property appraised and hopefully it'd be higher, have a bridge loan to purchase it at $350k with "cash" then refi for the higher appraised amount. (the bank will loan on the appraised value if i buy the property with cash before hand then refi with them) My monthly expense would be higher but less up front costs. I'm trying to get creative with the financing so there is less out of pocket on the front end. I'd love to hear your thoughts and suggestions.

Thankyou @Joshua Dorkin , @Brandon Turner @David Greene and @Mindy Jensen for the podcasts to help get my creative ideas up and running with their exceptional podcasts and insight.

@Aaron Foster, looks like this could be a good deal. A few things popped out to me:

  • What's the typical cap rate in the area for a property like this? I never see anything that high that isn't in a war zone. The bank is going to appraise the property based on the prevalent cap rate. So it's important to know this going in.
  • Not to split hairs, but improving NOI doesn't change the cap rate, it increases your value.
  • You wrote "$65k gross income, $55k net." Um, no. There's no way this or any other property is running a 15% expense ratio. Would you be willing to share your entire analysis?
  • CapEx may be minimal now due to the recent reno, but over time it will all even out and you should still be putting money aside each month.
  • The terms from your CU are fine. 20% down is the biggest plus. Not great, but about what I'm seeing. It's worth shopping around. Find a lender with a slightly lower rate or willing to forgo points, then take that back to your CU and see if they'll match or beat.
  • Besides DP and closing costs, the CU will probably insist that you have 6 months of reserves set aside.
  • I'm no bridge-loan expert, but my understanding is that these loans are intended to "bridge" the difference between traditional financing and your DP, not finance an entire purchase. 
  • "Hoping" for a higher appraisal is not a strategy. Putting together a business plan to raise income and lower expenses, thereby increasing the property's value is a strategy.
  • Have you confirmed that your CU will refi at the new appraisal WITHOUT a seasoning period? Most commercial lenders want a year of seasoning. I'd be super clear and specific with them to avoid any misunderstanding.

A couple of ways you could come at this:

  1. Bring in some investors to raise all of the cash. Execute your value-add business plan over the course of 12-18 months, then finance out. This can be structured a lot of different ways with the investors.
  2. Get a private loan for the initial purchase. You'll pay a higher rate. Execute as above and refi with the CU, paying back the private lender.
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