Fourplex Financing Options

What are my options for financing a gutted fourplex to rehab and then sell?

Details:

Price: Asking $110, would like to buy for $90k
Work that needs to be done: Everything. Gutted to studs. Out of state owner wants to “negotiate” a deal (their word). Initial guess is $50k for rehab (2 bed, 1 bath units - about 3400 square feet total space), but better estimates to follow tomorrow. We plan to do some finishing ourselves to save on costs.

ARV is estimated at $195,000 and rents would be $550-575 per unit.

I do not want to buy and hold because this property is not as close to us as I would like our rentals to be, but the profit would be nice to invest into a closer property.

My question is: What are my financing options? My credit score is high 700s (as is my husband’s score), but we are self employed, so we have chosen to do stated or no doc loans in the past without any trouble (just usual loan PITA stuff).

I want to use OPM as much as possible, but we do have plenty of reserves for carrying costs and other expenses. I would rather not take cash from our business, but I can if I need to. This isn’t a case of, “I have no money at all, help me buy,” but rather that I want to create a deal that uses as little of my cash as possible (isn’t that part of the beauty of real estate? :D).

I am still feeling out the seller’s motivation level. They have owned the property since 1991, but obviously they have not had tennants for a bit due to construction that hasn’t been finished (not sure why yet - but I will find out). Since this is Christmas weekend, it is hard to reach agents (understandably).

Should I be looking for short term financing of some sort? A rehab loan? Just a plain old conventional loan? The seller may be willing to carry back some sort of financing, and if so, what should I be asking for from them? I have read tons of books on this stuff, but I can’t turn the page here and find out what to do on this deal to have the best outcome. I would hate to screw up my first deal.

Any sage advice would be great. :slight_smile:

Thank you!

Laura

Hi Laura,

You have a couple options.

A conventional rehab loan. In most cases you will need to put down 10% for investment properties. I do know of one lender that will allow you to use the equity from the ARV as down payment. 80% LTV based on the ARV. They require a general contractor to be used. Stated loans are possible but can be hard to qualify for. Most conventional loans are 12 months and then modify into permanent financing when complete. The underwriting for the end loan is done upfront.

A hard money loan will get you about 70% of the arv. Stated loans are no problem. Cost will be higher but can get funded in 2 weeks vs. 3.5-4.5 weeks with a conventional lender. Any amount that does not fit within the 70% can be held in the form of a note by the seller. These are short term loans so the a refinance would be done shortly after paying off the seller and possibly getting you cash out as well.

Bank financing is also an option. Most local banks want you to put down 15-20%. However, there are probably a handful of banks in your city that would consider doing this based upon the equity and your high scores and assets.

If the property is in average condition and does not need much work currently, you could use a 100% loan through a conventional lender to complete the purchase. Then you would need to do a cash out 2nd to get funds for fixing up. They will only go off the current market value and not the future value.