How to finance 16 units?(

Question

16 units rent for $550, could rent for $650-$700 after rehab. Need $100000-$180000 renovation. Do you know of any creative ways to finance this deal? I have only $15,000 two homes without mortgages valued together at $100,000.

Help me. Thanks! Any advice would be greatly appreciated.

Barry

Help me. Thanks! Any advice would be greatly appreciated.

Barry

John Warren · Answer

@Barry Washington from what I have learned, you should not do this deal. If there is that much construction involved in the deal then you will probably be wrong on the rehab budget and be in over your head. If you can't come up with the down payment in commercial real estate, then you need to be looking at smaller deals or partnering with someone who has the capital to take the deal down.

Dennis M. · Answer

I’m basically repeating what was already said but I  would not want to go into such a venture with low reserves like that . Big rehabs are notorious for going over budget and that could snuff a guy like you right out .

Justin Frank · Answer

Hi @Barry Washington

There are many details about this property missing to know whether it is a solid deal or not. Just based on the little info you gave I would say your best route would be to grab a money partner. Given your financial situation A property that needs this much rehab will be really difficult to leverage with a traditional commercial loan. A partner would probably be best for you but it would also be beneficial for you to go sit down with a lender and present this deal to see what loan options they can or can’t come up with.

John Barrett · Answer

@Barry Washington this strikes me as a really high risk deal for you at this point in your investing career.  As everyone else has said, the amount of rehab required on this project represents a significant risk.  Given your starting position, I would be looking at how to increase your cash position first.

Commercial lenders will be looking for you to have at least 25% of the purchase price as a down payment and want to see a DSCR of at least 1.25.  In addition, they will require you to have sufficient cash reserves (# of months of payments will depend on the lender). Finally the fact that this is a case of a seriously distressed property (based on your rehab budget) I would expect a requirement for higher reserves.

After building up your cash reserves, I would be looking at doing a 1031 exchange on your existing properties.  There will always be opportunities, key is ensuring you don't take excessive risks that could jeopardize what you have already built.

Best of luck,

John

Adriel Hsu · Answer

I financed my 14-unit from a local credit union.  Try talking to your local small banks and credit unions.  They are more flexible in their lending.Also, an option for you may be bridge funding, where you can complete the re-position and then refinance out to long term debt.

Jesus Minier · Answer

im pretty new to this but from the way i see things.. doesnt the ARV make the final decision here? if the ARV is big enough and your getting the building way under value plus the rehab it might be worth the trouble no?

Ryan Webster · Answer

@Barry Washington

What is the current noi on the property?

Where is the property?

What will be the new property tax liability after you acquire the property?

If the projected noi without renovations without rental increase will support 80% debt I'll help you get actual renovation cost and determine if the roi on renovations is enough to support the debt required to complete renovation.

Barry Washington · Answer

Great input from everyone.  Give me the best idea to approach this deal. In other words what deal would work;  ie purchase them for 240,000,  only renovate one at a time, etc. What would make this a great deal? What questions should I ask the owner?

Diane G. · Answer

@Barry Washington

Why do you even want this deal?

Let’s say your net rent is $250 per door month... that converts to $48K per year, which is just enough to cover the principle and interest payments.... even without renovation....

Barry Washington · Answer

This deal looks bad according to the responses. What if I was able to purchase the property for $350,000? Would that change things?

I will be meeting the owner tomorrow at 12noon. We will be discussing the price (he has already reduced it to $400,000) as well as renovations. My estimation of $100,000 dollars were based upon $6,250 improvements of each unit. There are 3 vacant units, the others 13 are rented for $550. What shall I say to get him to reduce the price? Any suggestions is much appreciated!!!

Thank you.

Barry

How to finance 16 units?(

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