0% Down or Conventional Financing

2 Replies

Hi all... I have an 8 unit building that i am evaluating. I have a few financing options to entertain and i would like you feedback. I don’t want you to focus too much on the details of the income/expenses (imagine that the due diligence and analysis is perfect) but rather focus on the end results that the financing produces.

Sale price $500,000

1.

1st position bank financing (6%)

2nd position seller financing (8%) down payment and closing costs

Invest $60k (out of pocket) in value add construction

= -$600 per month in negative cash flow in year 1

= -$200 per month in negative cash flow in year 2

2.

Conventional financing

Invest $150k (out of pocket) for down payment and closing costs

Invest $60k (out of pocket) in value add construction

= +$700 per month in positive cash flow in year 1

= +$1100 per month in positive cash flow in year 2

3.

Syndicate and raise the money and give up 6-8% and 70/30 equity split

Invest $60k (out of pocket) in value add construction

= -$600 per month in negative cash flow in year 1

= -$200 per month in negative cash flow in year 2 

@Saverio Nestico , when do scenarios 1 & 3 start making money? At the end of year 2 you're spent nearly $570k for an investment that isn't turning a profit. Also, who would invest in a syndication that is expected to lose money?

Scenario 2 get you a 6% CoC ROI by the end of year 2, which isn't too great.

I'm not seeing the deal here.

I agree with you. And thanks for the feedback...

But my main reason for posting the question was to determine if it is wiser to do 100% seller financing with negative cash flow or spend the $150k for a 6-7% CoC return.