Lenders, Bankers, Money People

[Marshall Downs]

So, there is a 50 unit property I am interested in and looking for some suggestions about financing. Numbers are strong, but I won't get into deal specifics here. My situation is the following; want to purchase no money down with blend of seller financing and a loan. I have two small rental properties totaling 5 units. My real estate experience is: Licensed builder, property management experience with 60 units, renovation experience totaling approx 100 units, new construction of 15 units and LIHTC and other federal/ traditional funding utilized for projects (I structured, project managed, etc.) However, most of these activities were as an employee. My credit is ok, but not stellar and I don't personally have the assets to back up this project. Will a lender work with me at a low LTV if the numbers are good? I would prefer to do this solo, but know that a partner with a strong PFS will help immensely. I'd love to hear from lenders with their thoughts. Thanks!

[Brian Burke]

I think your best option is to raise the money from friends/family/colleagues. You would give them a share of the profits in exchange for their investment, but not "interest". Well...you can give them interest if you want to structure it that way but it's highly dangerous. I think you'll find that the expenses will be higher than you think so the burden of paying interest on subordinate financing could easily throw you into negative cash flow.

Another consideration is that you will need a lot more than $360K. You need money for closing costs, lending costs, third party reports, cash reserves, immediate-need capital improvements, utility deposits (which will surprise you with how high they are), first-year insurance premiums, and impound account funding (and I'm probably leaving something out). It's not unusual at all to need 10% of the purchase price to cover these costs.

Giving up a piece of your deal might not sound all that appealing, but part of a deal is better than no deal at all, which might be exactly what you get if you are trying to finance this 100% with debt.