innovative/creative or illegal?

[Paul M.]

Theoretically let’s say someone or some entity is interested in an 18 unit for 500k. Three questions…

They have a decent credit score, about 40k cash in the bank but not the 25% (125k) for a down payment. However, they fully own 12 units that cash flow about 40k a year worth about 250k-275k. In place is a very reputable property management company that would be willing to take on the 18 unit in question.

• 1) How would refinancing the equity in the 12 units to acquire the 18 work? Would they essentially be taking out a mortgage against their 12 units for 75% of their value (187k-206k) to obtain the 25% down and then a second mortgage to repay the remainder of the 500k?
• 2) Also, let’s say the deal goes through… For commercial loans they do a 5 or 7 or 10 year balloon, 30 year amortization. Banks “like to see” 6 months’ worth of reserves to cover rent (where the undermentioned 40k comes in.) All of a sudden a month after the 18 unit is secured, suppose a deal for 12 units becomes available for 10% down with a 2 year land contract. Is there something stopping the borrower legally from tapping a portion of the reserves cash and putting 10% down to take on the land contract for the 12 immediately after mortgaging the 18?
• 3) If that is somehow illegal, is it illegal to enter into a land contract after taking on a commercial mortgage period or is it just illegal to use the portion of funds that was to cover the reserve?