80/20? 100% Financing?
I recently looked at a 5 unit building. Seller is pretty motivated. I was thinking of making an offer based on 80/20 financing and have a bank finance 80% and the seller provide the 20%. Has anyone done this? If so, how did you structure this and did the bank give you a hard time?
Thanks in advance for your feedback.
I think you will be hard pressed to get 100% financing unless it is through the seller. I think the closest you are going to get to that today is FHA financing where you move into the house.
OKAY first a lot of people will say 100 % is not possible
THIS is not true you have to have the following things for it to be
1 ) very higly movatied seller willing to do what ever to get the property gone
2 ) a good hard money lender as banks want no part of a 100 % deal
And even with the above the getting the deal that will make you money is hard to find
But it is out there and it may not be this deal you are looking at now
As for the normal you can expect to find a 60 to 65 % /20 % ownery carry or less and the rest out of your pocket
But as i said the 100 % deals are out there just they are not as easy to find or get done most of the time
Sub -2 is a true way to get a 100 % not you are still going to have to pay some costs in the deal
Local bank will carry 80% and I will try to get the seller to carry 20%.
If you have a track record of success with multi-plex rentals, a commercial lender will most likely require you to have at least 15% down and limit the seller participation to only 5%.
At the other extreme, without a track record, expect the commercial lender to require you to take a higher equity position -- as much as 30% -- and refuse to permit seller carry back.
You might find a lender whose requirements fall somewhere in between, but it is highly unlikely that you will find a commercial lender that will allow 100% financing in this mortgage climate.
POSCASH
Good luck on this deal i hope you can do what you say you can
If you were totaly sure it was a go you i think would not have asked here for thoughts
NEW kid you are correct only with a skill level in this type of real estate will a bank or even hard money take a big chance
As well banks and hard money are asking for more skin in the game for every one no matter what or who[ Edited by northwest01 on Date 07/27/2009 ]
OKAY THEN GOOD LUCK !!!!!
The bank will do 80% on that small a loan? WOW. I would marry that bank.
Quote:
On 2009-04-18 23:57, cjmazur wrote:
2.5 find buyer and flip goto next deal
But what is the best way to flip it? Do you set up a Simultaneous close? do you just sell the option outright? I have trouble thinking that a buyer would just pull $X out of his pocket to buy an option.
Thanks for the input!!!
I hope it must be stating that you or any one represending you can do that.
So when you say options, do you actually mean lease options, wherein a monthly rent is paid to the owner until the option is exercised?
options to purchase.
Once the option premium is paid, it just sits there until the expiration data.
Hear, hear.
IRA and options - a good combo.
bulldoze
subdivide and use manufacture/modular homes
merge parcels and build apartment
are a couple that come to mind
Did you operate the halfway house business? Is it still up and running?
You might consider advertising and listing with business brokers who could sell the business of running the halfway house for more than the land alone would be worth.
I just want to clarify a thing, do you oen these right now.
Sober housing I am not familiar with, but maybe some state or other NFP funding is available to help you get through - they may find tenants and pay their rent or portion thereof.
If you can sell, even at wholesale prices, that will at least not "create some brain damage down the road".
I looked into this a bit, LPs and LLCs seemed the entity of choice.
4 years might be a bit too short of a terms to seem the market "fully" turn.
if your quote ROI and investment amount, beware of state, federal, and perhaps even Japanese securities laws.
40-60 to 60-40 is the range of splits I have seen.
Depending on what is anything other than money they are bringing to the table.
Thanks, got that.
How about expenses and possible salary for the general partner? What kind of structures has anyone seen?
I have this idea of covering my expenses and taking a living wage in the first couple of years in return for paying first 10% of returns to investors, then I take 2nd 10% and anything else is split.
This would be if expenses/salary/50/50 seems too slanted in my favor.
This is less attractive for me. Has anyone seen this set-up or have any insights?
[ Edited by janlyallwatson on Date 04/29/2009 ]
Agree with previous post.
50 houses means 50 roofs, 50 lawns, 50 driveways to shovel snow.
50-unit building, 1 roof, 1 lawn, 0 or 1 driveway .
Then, again 20 units or larger are more professionally managed and there are fewer good deals.
You could do property ladder:
Buy a house fix (financially and/or phsycally)
, exchange (1031 or IRA) for a duplex, fix (financially and/or physically),
exchange (1031 or IRA) for a quad to 6-unit, etc.
At some point you are going to reach a more efficient market where the cap rates are lower.
But from the standpoint of managing and holding, the higher the number of units the lower your per-unit expenses. Just like any other business.
The cost of renovations is almost 1 year of rent payments. Being state funded is a double edged sword right now with a lot of states having problems balancing a budget.
To address the renovation:
Can you do half the remodeling first year, half the second, or 1/3 each year? That way you will reduce your upfront expenses and increase your upfront income.
To address the state funding risk:
Can you get the company principals to guarantee personally on the lease and check their credit, make sure they have enough assets/other income to cover the lease?
Thanks everyone for valuable input! I would be paying the taxes on the property ($3700 / year) and a hazard ins policy on the building itself. The only way they can move in is with all the renovations completed. The company leasing the building will also have to invest about $12k to install a fire sprinkler system.
From what I can tell the state funding looks like it will continue as the property will be used to house people with mental issues. there is the possibility of them staying much longer. they were in their last lease for 12 years.