There is a 30 unit apartment that was appraised for 1.4 million selling for $895,000. The owner died who had a bunch of kids. None of the kids want anything to do with the property, so they let it go 50% vacant. It was built in the 70’s and includes 14 SFH that have 2-3 bedrooms, they are all in good shape.
Questions:
How do HML view 50% vacant properties?
Do they see the potential because of the dealth of the owner?
Thanks!!!
Does this seem like a good opertunity to use HML to obtain 100% financing including closing costs?
I think you may have a good deal here. You should be able to drop that price even lower, or better yet, include seller financing with the combination of HML.
Improve management, make some general repairs, and if that 1.4 Mil is the appraised value if 100% occupied, that’s a nice equity spread.
On Saturday when I am going through the properties I am going to ask if the 1.4 million appraisal is at the 50% occupancy, I assume that if I increased the occupancy then the appraisal would then increase. The 14 SFH’s are all filled. On Saturday I’m going to get the Schedule E tax returns and some additional financial info.
I would not use hard money for this unless there were more than routine repairs needed. You’d be better off getting a bridge loan until you get the property up to acceptable occupancy for permanate financing. Bridge loans are designed for this type of thing.
I am confused about what this property consists of though. 30 unit apartment building and/ or 14 SFH’s with 2 or 3 bedrooms?
It is one deal, the sellers won’t allow any breaking up of the properties. The 30 unit apartment that looks great, and 14 SFH that are 800-1,000 sq ft with 2-3 bedrooms each.
The package was appraised at 1.4 million and the Realtor comped out the SFH at 60-70,000 each.
I see. Are these SFHs all right next to eachother or all over town? If you can get the seller to be realistic about the properties, this might be a good deal. The combined value of the SFHs almost equals the asking price on the conservative side of 60k for each. I’d certainly want to get separate financing for the apartment building (bridge) and the houses to make life easier when it comes to selling them, even if you keep them for a while as rentals.
I am still struggling to understand the differences/benefits of HML Vs. Bridge loans. To me HML are sort term loans and so are Bride loans.
What makes you think that a Bride loan would be better then a HML if there isn’t much rehab needed?
I think one of the reasons the property is so cheap is because those that can afford this property don’t want the combination. But the family is sticking to their guns and will not divide the properties. There have been a few low ball bids that have been rejected.
I like your idea on getting financing for the SFH and seperate financing for the apartment. The only problem is that is I get seperate financing for the SFH I would still have to sell all 14 at one time. The SFH are all in the same town but are scattered about.
Do you have any ideas on financing the SFH individually without getting hit with the closing costs.
HML are designed more for renovating. They have a draw structure meant for phases of construction. The payment plans, interest, points, and fees are very similar to bridges.
Bridges are just short term loans (usually interest only) meant to get you from one place to another. This could mean a change of zoning, condo conversion, or in this case to increase vacancies. Permanent lenders like to see an occupancy of around 70% or so for residential. With commercial hard money and bridge loans, the dividing line gets a little more blurry but you still might save a few points or interest by going with a bridge.
I like to say that the different is a HML is for a construction rehab, bridges are for management rehabs.
Thanks, that helps understand the differences. Do you know if a bridge loan allow 100% financing for this type of loan?
Also do you have any ideas on breaking up the SFH so that if I wanted I could sell them off individually. Three of the tenants want to buy their place, but I’m unclear on how that would work with the loan.
I don’t know exactly how it works to buy the SFHs together but finance them individually but a broker should know. It would be similar to condo financing I’d think.
Bridge loans absolutely go to 100% (and beyond in some cases). I’d expect something in the neighborhood of 12% with 3- 4 points upfront and whatever appraisal, inspection and junk fees with interest only payments for 6 months -3 years. I wouldn’t go for any prepayment penalties because it might only take 2-3 months for you to get it up to a standard occupancy level at which point you’d refinance @ a 70% LTV or something.
So the 3-4 points up front would mean I would have to pay them with a check or would they add that to the loan? Also I could roll all the closing costs into the loan as long as it doesn’t exceed their 65% limit?
Sorry to nit pick, but the devil is in the details.
You can find bridges with higher limits than 65% of the ARV. Just as with hard money, they don’t care what you spend the money on (points, interest payments, fees, etc.) just as long as the collateral backs it up.
What state are you in? I might be able to send you some links.
If the sellers are not willing to split up the property pool (apt complex + SFRs), then as another poster has already indicated, you are limited to a bridge loan.
As most bridge loans are short term based (and without prepayment penalties), you could opt to purchase this using a bridge loan and then refinance the properties seperately afterwards.
Most bridge loan lenders cap the lending limits to between 65-75 LTV unless you using cross collateralization (at which time you could structure 100% financing).
A million dollar commercial deal like this where the seller dies and kids let it go 50% vacant is how Great Deals are made. The problem lies in my cash in the bank. If I can’t get 100% financing with nothing at all coming out of my bank then the deal will fall through.
So this Saturday if everything checks out I’m going to put a bid down with a finance contingiency. If I can’t get it 100% with all points and closing cost rolled into the loan then I will have to back out. But if I can then it is a heck of a deal.
I’m not sure what DCR means. But the deal sucked. Imagine building a road 30 miles into the heart of the woods and then putting a gas station, and a big apartment building with some houses. The person who buys this place will actually own the town (not a good thing). But I’m glad I went and checked it out.
I’m not sure what DCR is either, but I think the poster meant DSCR or DSR which is the debt service ratio.
Despite what you might be told, you can’t legally get 100% commercial financing without committing some level of fraud (having the seller agree to a hush hush second is a popular approach, but fraud nonetheless).
If you find some one that can legitimately offer 100% commercial financing, kindly send him my way because I’m in possession of the largest database of 100% financing commercial buyers known to man. :biggrin