I own an apartment building in St. Clair County, IL. The property was once on Section 8, but about 15 years ago pipes froze and burst in the building. The building is in horrible shape and I’m just rough estimating around $30-40K to rehab each unit. What options are available in today’s economy to secure rehab capital?
Hi,
Do you own this apartment building outright (Free & Clear) ?
If you own the property free and clear you can potentially borrow Hard Money! What you need to do are the following things:
- Have a licensed contractor with a good reputation go through the property with you and determine a estimate of cost’s to completely remodel using apartment grade finishes. Remember to look completely at heating, air conditioning, plumbing, electrical, roofing, insulation, windows, entry doors, fire / life / safety requirements and at whether the county could require asbestos removal or lead based paint removal (Or whether encapsulation is a viable alternative)?
What kind of mold do you have in the building and what will it cost for a professional company to abate the mold???
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Sit down and put together a income / expense estimate? Use real numbers from property management and realtors in your area and support your numbers through the actual cost’s of comparable properties! Make sure you reconstruct rent rolls based on size, bedrooms, baths, ammenities, etc. and support these estimated rents through actual rents in comparable properties!
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You will need to calculate your carrying cost’s, overhead, utilities, supervision, etc. as part of your construction cost’s! This way you put together a full picture of all cost’s!
Since you already own the property the hard money lenders will not require you to have any down payment provided your property is potentially worth 30% more than you need to borrow as your HML will only loan 70% LTV / ARV (Some may say 65% Maximum)
Make sure you pull all your factual proof from 1/4 mile, 1/2 mile and Mile if you can just like an appraiser will do!
Your value will be primarily based on cap rate / gross rent multiplier and compared to your local market! Make sure your numbers are acurate and that you cover all cost’s of managing and owning the property (Remember 50 / 50 rule as half of your adjusted gross income should go to expenses and reserves.)
With all these numbers you should be able to determine your projected property value! Make sure you accurately adjust for a vacancy factor before seperating income / expense 50 / 50 !!!
GR
you don’t need to finance those repairs because your insurance paid for that.
Rehab funding programs may require or may not require amount as down payment. But will make sure that contractor or investor has the license or competent experience to completely do the project.
One option might be to use the hard mony to cover the rehab( remember the HML will go in title in 1st position) and if you are capable or have partners whom are, you can refi out of sell to make the HML whole. Depending on the part of the country your HM$ comes from, they may want as much as 50% out your pocket at seetlement and as little as 10 in others. Sounds like an interesting project.
There are a couple of options for securing rehab capital in today’s market. Once such option would be to obtain a FHA loan. Several FHA programs allow for a larger LTV ratio to allow for rehabs. Additionally many state and local grants provide funding for rehab projects in low-income areas. In order to identify the best options in your area visit the local housing development website which will provide information on how to obtain grant funding.
If you are thinking of FHA 203k they are only for 1-4 family and need to be owner occupied. Though there might be other programs available, I think HUD does some large scale apartment building loans. But I’m not sure what the conditions are and under what sort of circumstances.