Stump ya'll

Ok. This one is for all the hardcore financing gurus:
NOTE: This is only an example so don’t hound me for a phantom loan.

I’m in contract on an 8 unit appartment building, purchase price $200,000. The utilities are not sub-metered out. The building is at 100% occupancy. The average monthly utility payments are $1,200. The furnace is gas, forced air and was installed in 1978. The water heater is gas and was installed in 1987. The home inspection report says that both are going to probably need replaced in the next year. The attic insulation has an R-19 rating and the suggested min. is R-49. There are approx 55 60w incandescent lights in the building.

I had a home energy rater come out and give me a report. The report stated that if I replace the mechanicals with new high effeciency models, add insulation to the attic, and change the light bulbs to compact florescents, I can save about $500.00/mo in utility charges.

I price all the improvements and they total up to $22,500 (labor included).

Now, before I recieved the home energy report I was approved by the lender for 90% LTV.

Question, will a lender finance the purchase and the improvements or do I have to look for a seperate lender?


Depends on the lender, some will do a commercial construction loan, and then refi at the same time and will have less fees.

SOme lenders will do a construction loan to permanent loan.,

Keep in mind that the property is at 100% occupancy, i.e., it is not owner-occupied. Also, the purchase LTV is 90%.

There are lenders who will do a non-owner occupied constuction loan on a commercial property over 90% LTV? :o

Well how you could get it structured is a little creative and you do have to have the seller in agreement.

One if you can get the seller to agree to sell you the property at 250k if it could appraise at that.

Then have the seller agree to pay either the contractor off of the HUD the 25k or you can have it go to an LLC that you are incontrol of and use the money for the work and you are still getting a 90% loan so it is a win win.

You can get greater the 90% LTV in commercial loans and you then are working in the exception and you will be working with vewry few lenders that go that high so I would suggest staying in the 90% range which is still high and a good LTV

What if the property cannot appraise for more than purchase price of $200k?

Can you negotiate with the seller to split it with you like come down with the purchase price so that you can get it built in the loan?

Have you asked the appraiser if the improvements will increase the appaisal?

Will the commercial lender lend you more because your cap rate will impove?

Can you get more rent to help pay for the improvements because you are upgrading the property and fuel cost are going up and thus you can justify it by that and thus witht he savings of the improvents get it paid for?

Can you get a HELOC on your personal property to pay for it and then have the rent increase to pay for the additonal loan?

Can you cut other corners to increase the cap rate like with the laundry, garbage,property manager or other cut to finance it?

Cant you use the post construction projection of its value