HELP on structuring/financing apartment building

I have an apartment building I am looking to buy and need some help in structuring offer and financing options…

112 unit apartment building in Fl for 3.9mil (39,400 per unit) and Gross Yearly rent is $1.1mil. Building is 95% occuppied and some units can use minor updating/appliances changed as they become vacant. About 70% is on section 8 and this area is about to get a section 8 increase as well of about 10% per month. ($2-3K in work max) Owner is willing to hold 50% of the purchase price. The taxes will be about $80,000 a yr and insurance about 70,000 a yr I was told. I do not have the net operating expenses yet and am waiting. But being where it is located, should not be to high(no major landscaping or pool), however building was managed by owner, so a mgmt co will have to come aboard which will run about 10% or 100K a yr. I am thinking of just finding a real good maintance man and give them a unit and free rent with 30K salary to handle it all instead which would give me a 50K savings at least.

Main questions. Seller is flexible and will hold paper, I know based on rents, this will appraise way over 3.9mil, he actually has another building in same area for sale but smaller and at 25k per door. he is retiring and moving out of country so prices are to go with some seller financing for income he mentioned. He wants to hold note for at least 5yrs at 8% interest but is willing to hold a smaller note or none still. Now how can this be structured so I can do this with no money down. With so much equity, can I get commerical financing for 50% and have him hold 50%, then wait 2yrs and refi the loan and buy him out?

This property will probably have cashflow in the 175-250K per yr range. And with all the redevelopement in the area, it is probably about 3-5yrs away from this area where all they build is retail/condo mixs which would make this land valuable. Right now, he is basically selling it for land value. If redevelopement hits here, the land would be worth in the 10mil range.

Most conventional lenders will not allow you take a 50% loan from them and a 50% loan from the owner, with no cash from you.

Some hard money lenders will be more flexible but the terms will kill you if you’re using them for a long period of time.


So a conv lender won’t even touch it if they are that only holding 50% seeing that they would be in a good position if they had to take it back?

Lenders want skin in the game from the buyer not just the seller or a different lender.

Reasoning behind it:
If I do a no money down loan but lose the property it would suck but oh well. If I put $390,000 (10%) down on a property and I loss it then I would be pissed. So that’s there logic.

This is the reason they have HML. As long as it will appraise out, then just use a HML for the first few months. Then refy and get a good fixed interest rate.

Greenpoint has a 620 No Doc 80%LTV /90%CLTV program with pretty good rates. Iron range makes a good point in regards to just getting it into your name using HML and then refinance pretty quickly. Keep in mind that at closing the current owner will have to provide you with pro-rated rents for the month as well as all of the security deposits. So depending how you structure it you are going to walk away from the closing table with some cash as well. I am not suggesting that you pocket the security deposits, but since you will not have a payment for at least 30-60 days depending on when you close it will still put some walking around money in your pocket. :bobble

I always do what christopher w suggested. When there are tenants in the property I have always closed in the beginning of the month. That way I will get the money from the pro-rated rent and the security deposits at closing. I use this money to offset closing costs or just pocket it to help me get going. With HML if the deal is sweet enough some HML’s will even let you role in the closing cost and role in the first six months of mortgage payments into the loan. You will want to make sure it will appraise for at least 6.5 million in order to use a HML.
Unless you have $400,000-800,000 (10-20%) to put down, then HML might be the answer. Otherwise you could do seller financing for the whole deal and then just refinance in a few months.

I thought about asking to QCD me to the title and then let me refi in a few months with a no seasoning refi but still banks see this and it become a flag. Now if I was on title for 1yr I can probably swing that

Do you have any clue on if you could get it appraised for $6.5 million? If so then the best option here is probably HML, then a refy a few months later.

In the end you offer what you can and walk away if it can’t be done. So offer what you think will be 60% of the appraised value, or offer 100% seller financing with a balloon pmt in 1-2 years. If he says no to either offer then just walk away.

3.9mil bldg appraised at 6.5? Either this is the greatest deal ever or this will be the biggest (ok maybe not biggest) mortgage fraud ever.

yrush2000: If you are doing some combination of loans, make sure your seller understands that he’s going to be in 2nd position… If he doesn’t like that, he might just say no to the subordination.

$6.5M X 60% = $3.9M HML will require the property to appraise close to $6.5M. If he can not get it to appraise then he can not use a HML. You are thrown off by the big numbers, but he needs to get the property around 60% of the appraised value or he can’t use a HML. Sucessful investor buy deals at 60% every day. Figure out what the appraised value will be, then bid 60% or less and let the seller decide to accept or not.

I bought a property for $28,000 that was worth about $50,000. This is 56% of the value. Think of the deal above as getting a $65,000 property for $39,000 or 60%. In this case the deal is very big so you need to make that you get a great deal or walk away. A deal of this size can distroy even a rich man.

I’m not saying that there are no deals where you get 40% instant equity… But there is a wold of difference between 40% of $60k and 40% of $6m. badabing

Well I also know in commerical especially with a 100+ unit building, appraisals are also partial based on the rental income. The building will cashflow at current prices at over $300 a month per unit. I am waiting on the seller to accept my offer to move foward. However one of the killers is, the realtor mentioned seller wants to see a POF or letter of committment with approval in 72hrs. I know the land itself has an assessed value of 3.1mil according to 2006 tax record. I also know when redevelopement reaches this area, the land will more than triple in value like it has a couple miles away. Also HML uses a more conservative appriasal then standard lenders…

My offer was based on an appraisal being completed within 7 days of acceptable.
I put offer in using HML if appraisal comes in, with 3yrs seller financing on a 2nd if needed. I also put in appraisal I will pay seller 20% of the net profits each quarter, but a loss will affect the next quarter pay out… I put some whacky conditions and terms to be creative… Even at 80%, I can net over $200 per door which would be great when you have 112 units., that is still over 20K a month…

Now I am waiting…

Mr 2000,
I would really be interested in how this works out…even if you pass on it.
Thanks for your post, Darin