Best Way To Purchase 5 Lots/2 Buildings (need Work)
Owner will finance. Good road frontage on major 4 laned road. 50 ft. road frontage per lot. Zoned: "Store w/Office" 2600 sq. ft. total asphalt (tax record, may be more)
Lot 1: One single story unit with 2 small stores. New roof. Interior/Exterior needs 20K in work.
Lot 2: Adjacent to Lot 1. One two story unit with 2 small stores on bottom and 2 2/1 Apartments up top. Needs 45K in work, including new roof (pour aluminum/tar).
Stores could rent for about $800/mo each. Apartments would rent for about $500/mo.
Lots 3,4,5: Vacant, buildable lots behind Lots 1 & 2 with residential road frontage. Will probably try to get approval for 6 townhomes.
Owner wants 395K with a large down payment. This cash down payment, plus paying cash for the work, is too much $$$ out of pocket. There is a lot of equity in this deal. Just need to get to it without the huge cash hurdle. In order to maximize Cash on Cash Return, is it better to:
1) give the owner a down payment and get some sort of loan for the repairs/townhome build once I have the deed.
2) get a loan for the whole thing (I was thinking to build 6 townhomes on the back 3 lots. They had duplexes at one time in the past.
3) Other more creative ideas?
JohnCl
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[ Edited by JohnCl on Date 07/22/2005 ]
Well as a rule of thumb I try to turn such deals on their head. Rather than put the owner financing in first position get a new 75% LTV first. Then let the seller take back a 25% second. They see more cash now than they would otherwise-- you are out of pocket almost nothing.
Now then, as to the development loans. The best of all possible worlds is if you can get the acquisition financing against the lots that are not the ones you are planning to build on and then finance the building lots to build the new buildings. Lot depends on relative values there, of course.