Has anyone done a fully disclosed double closing on a high-cap multifamily deal?

Question

I’ve been thinking through a structure on some small multifamily deals and I’m curious whether anyone here has actually closed something similar.

Every once in a while I come across properties trading at a 12%–13% cap rate where the income supports a value materially higher than the negotiated purchase price.

The idea would be for my business partner to acquire the property first, then have our operating company purchase it from him in a second, fully disclosed closing at a higher price that is still supported by an independent appraisal and the actual NOI.

For example, the second purchase could potentially be structured with:

• DSCR/commercial senior financing based on the second transaction• Seller carry from my partner for the remaining portion• The appraisal supporting the second purchase price• Enough cash flow for the property to comfortably meet the lender’s DSCR requirements

The attraction is that, on a genuinely high-cap deal bought well below value, the senior financing plus seller carry could potentially cover most or all of the second acquisition without requiring a large additional cash contribution.

I’m not talking about hiding the first transaction, disguising the relationship between the parties, inflating an appraisal, or concealing the seller note. The lender, appraiser, title company and attorneys would know exactly what happened and who the parties are.

What I’m trying to understand is how lenders actually treat this in the real world.

Do they underwrite from the second purchase price or the original acquisition cost?

Is there normally a seasoning requirement before the second buyer can finance against the higher value?

Would the transaction be treated as a related-party / non-arm’s-length sale?

Can a seller carry from the first buyer sit behind the new DSCR loan?

And have you seen lenders accept the higher basis when both the appraisal and in-place NOI clearly support it?

I’m particularly interested in experiences with 5+ unit multifamily or small commercial properties, rather than residential flips.

Would love to hear from anyone who has actually structured one of these and what the lender/title company required.

Alex S. · Answer

The lender question is the right one, but ask it in writing and ask specifically which document they will use as the basis of value: your A-to-B purchase price, the B-to-C price, or a new appraisal. On a fully disclosed double close where the C-side lender sees both HUDs, most will underwrite LTV off the lower of your acquisition cost or the appraised value, and some add a seasoning requirement of 6 to 12 months before they will lend against the higher number. Get the title company to confirm they will do simultaneous funding for the structure too, since many underwriters have stopped allowing it and that kills the deal faster than LTV does.

Ashish Acharya · Answer

Eduardo, I think the biggest issue here is that “fully disclosed” helps, but it doesn’t automatically make the second transaction financeable.

On a 5+ unit multifamily deal, the lender is going to care about how recently the property changed hands, whether the second price is supported by actual NOI and appraisal, whether the first and second buyers are related, and whether any seller carry or subordinate financing affects their lien position or underwriting.

I also wouldn’t assume that a strong appraisal alone means the lender will automatically lend against the higher second purchase price. Some lenders will put more weight on the recent acquisition cost or require seasoning before they give full credit to a higher value, especially when there hasn’t been a meaningful operational or physical change between closings.

From the CPA side, I’d also want the two transactions documented very cleanly. The first buyer may have gain recognition on the resale, the seller-financed portion needs to be structured correctly, and related-party or non-arm’s-length facts can change how the transaction is viewed.

The real test is whether the second deal still works if the lender underwrites more conservatively than expected. I’d model the senior loan, seller carry, DSCR, actual NOI, and cash required under several scenarios before relying on the double-close structure.

Feel free to DM me, I’d be happy to send over our Commercial Property Analyzer and a few tax-planning resources that can help model the second transaction before you approach lenders.

Greg Scott · Answer

Self-dealing to drive up historical transaction prices got a number of people put into jail as the GFC unfolded. However, your plan seems unnecessarily complicated.

An above-market cap rate is the same as saying you bought below market price. Any valid appraisal should ignore what you are buying it for and give you market price.

Most commercial loans are DSCR-based loans, and the term "DSCR loan" is typically used for single family because historically you woudn't put a commercial loan on a SFF.

If you were able to buy a 5+ unit property far below market rate, it might be able to support a loan above the purchase price. Even if the initial lender balked at that idea, if the NOI is real, and you can prove it under your ownership, you should be able to refi in short order.

Eduardo Cambil · Answer

Greg, this is exactly the distinction I was trying to get at. I’m not looking to create an artificial higher transaction price or do anything that would be considered self-dealing.

The idea is that the appraisal has to independently support market value, and the actual in-place NOI has to support the debt. If we acquire a 5+ unit property below market and the lender limits the acquisition loan to purchase price, then the cleaner approach may simply be to close with senior debt + a fully disclosed seller carry, season the property, and refinance based on the demonstrated NOI and appraised value.

What I’m trying to understand is whether any commercial lenders will recognize the stronger appraised value at acquisition, or whether practically speaking they’ll almost always lend off the lower of purchase price or appraised value and force the value capture into the refinance.

On a 5+ unit deal, have you personally seen lenders give acquisition proceeds above purchase price when the appraisal and NOI supported it, or has that only happened on the refinance side?

Has anyone done a fully disclosed double closing on a high-cap multifamily deal?

Has anyone done a fully disclosed double closing on a high-cap multifamily deal?

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