I have an opportunity to purchase an off market 8 unit deal. I have spoken to two banks and they will only do 25% down and 1.35 DSCR (Debt Service Coverage Ratio). The bank will only lend up to $390k. The asking price is $660k and at 25%, I do not have near $165k to put down. I will continue to look at other banks.
What I do have is $45k cash, and a detached single family home rental property currently valued ~$215k with a loan balance of $126k. I am considering refinancing it to pull the cash out.
My main question is, how can I 1) approach the seller to do seller financing and 2) how can I negotiate and structure it to be fair to both parties step by step?
See below for the figures.
Asking price: $660k
Gross income: $74,412
Cap rate: 7%
Any insight would be greatly appreciated!
Instead of a cash out refi on your primary residence, have you considered a HELOC? Then you can pull out what you need only, then replenish it after you refi and you'll have the cash available again without making payments on money sitting in some bank account collecting dust between deals.
I think you really need much more cash available to safely do that deal. Even with a commercial lender, you'll need the $165k down plus 6 months of reserves in cash (or cash equivalents). Not to mention that I'm guessing the property needs some work, right?
Even for hard money, the lowest I've seen is 10% down.
You should take out a HELOC and try to squeeze at least $60k out of that. Then offer the seller 10% down and 4.5% interest only or something to maximize cashflow. divert all of your cashflow to paying down the HELOC. Get the place fixed up, increase all the rents, then go to the bank with a stabilized asset and refi all your cash back out and do it again.
One caveat with the HELOC is that it's like a credit card. If you max it out, it's going to lower your credit score. It will start to shoot back up as you pay it back though.