Financing a Package Deal

13 Replies

Hello everyone, I am looking for some advice on my first deal. I came across a gentleman who is looking to sell off the rest of his rental property, he has been doing this a very long time and is ready to give them up. He has 5 properties left and is asking 125k for the package. My issue is that I am not sure the best way to finance this deal since I can not use a conventional mortgage loan and I do not have  huge cash down payment.

Purchase Price: 125,000

Monthly Income: 6450

Monthly Operating Expenses: 3119.58

Monthly Cashflow: 3330.42

Tax assesments: 106,800     38,600     32,900     32,900     31,900        Total: $243,100 

The owner did offer seller financing but would want 150k with 50k down and 5 years to pay the 100k balance, that takes away $1667 per month to the seller. How can I present this to the seller with a lower monthly payment and less money down? Maybe finance a different route? Any ideas/feedback is greatly appreciated. This is my first deal and it seems like a home run if I can figure a creative way to finance the deal and increase cashflow.

 

You could try offering less down, higher than average interest, and a balloon payment at 5 years? With seller financing,
(continued 😁) you have endless possibilities, it's just about finding a happy medium that works for both of you.

An increased sale price of $25K is a larger cost than I'd want to pay.  I'd think you could get financing from a bank (likely a 'commercial' loan) for something like 20-25% down.  That would be $25K-$35K down.  If you don't have that much cash it is hard to invest in RE, other than house hacking.  Maybe find a partner?

With the ballon payment; do you pay the full amount including interest or only the remaining principal balance?

I did consider using a commercial, I have 15k so I'm sure I could find a way to come up with 10k, but the increase of 25k and the 50k down just does not work for me at the moment. 

Thank you for the feedback!

The balloon would be the remaining principal due. The idea is you have lower payments, and the 5 years will give you a chance to stabilize the properties to refinance before the balloon is due

That makes sense, I'll have to find that happy medium using that scenario. How accurate are tax assessments compared to actual home value, I feel having over 120k in initial equity would be nice when comes time to refi. 

They're not accurate at all. It's just a measure to assess taxes. For example, my home is assessed at $25,500 and the market value is roughly $275,000

Thanks for the knowledge Jason! Really cleared up some things up that I was unsure about.

@Nicholas Reyes

How confident are you in the monthly income amounts?  The value seems pretty high to me based on the property values.  Maybe you're getting a great deal, but I would be a little suspicious.  You're numbers assume over $1,300/property/month.  Is this reasonable in the areas these are located and their condition?

Property 1 is a 4-unit MF with a SFH in the back

Property 2 is a duplex

Property 3 is a duplex

4 and 5 SFH

11 doors total

These properties are all in C- neighborhoods, the rents seem reasonable for their locations. There are currently 2 vacancies

I would offer a higher interest rate with a lower down payment.   Looks very promising, be sure his numbers are real, get the deal done and refinance in the next couple of years to a lower rate.   The ways to get this deal done are infinite if the seller is willing to carry.  What are his motivations to sell? That may help you figure out what he will be happy with at the end of the day.  Good luck!

Thank you @Deborah Du Plessis , I'm going to schedule a walk through of all the properties and feel the seller out a little more. Hopefully he will be comfortable with a higher interest rate. If not I may just make an offer on all the MFH and try to persuade the seller by helping him get rid of the 2 SFH.

Interested to hear how the walkthrough goes and why he is selling. Seems like a great deal if you can get it to work! Do you know the rent breakdowns per house?

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