Duplex package, $4.5m, I have no money.... help?

Question

Hey BP crew. I'm a newer investor (I currently have one SFR). I recently found a large duplex package deal, 14 buildings 28-units located about 3mi from where I live. The asking price is $4.5m which I think can be negotiated. Being that I'm not flush with cash, and the dp on something like this is ~$1,000,000, What are any suggestions on creatively making this deal happen? I know all of the standard answers:
- find external investors
- be rich
- syndicate
-bla bla bla

I have a business partner and and combined with we can come up with $200,000-$300,000 which I know is a drop in the bucket here, but what (if any) creative options could there be to work with the seller in some sort of seller-financing deal? I was told by the listing agent that the seller may be open to seller financing, but I also know a seller want's to get there money. So in this case, the down payment is my giant to conquer. How have you guys handled this kind of deal? How do I "use other people's money" without getting into a web of ownership/complexity? Maybe I just have unreal expectations and I should keep my head in the sand :P. Anyway, interested to hear your thoughts and to learn.

Dennis Muno · Answer

Hello Adam, The only way possible is to partner with your partner. Even with that, what is his experience? Experience seems to be the biggest hurdle here. Has he been an investor for many years? How many investment projects has he done in the last 3 years with his name on title? Does he have experience in larger unit properties like this? Private money is an option but the experience of your partner will be absolutely key. What do you plan to do with the property if you were to buy? Rehab and hold? Rehab and sell? Buy, no rehab and hold? This seems like a long shot but if your partner has more experience and you can get another investor too your chances could increase of getting funding. Given that you only have one SFR right now, your friend's experience will be most important. Even with that, is the property already rented out and cashflowing? While the outlook for financing looks bleak: if you can get other investors who are experienced the chances of financing look much better

Darnell Lockett · Answer

H @Adam Smugala. You’re a new investor looking to purchase a 14 building/28 unit package project? Interesting. Do you or,your business partner have any experience managing 28 units? Do you all have cash reserves on hand? How much cash reserves do you need on hand for this size project? Even if you go with seller financing and the seller negotiates an affordable DP with you, there are so many other factors to consider. Cash and experience go a long way in RE investing. Without both….I’d be cautious trying purchase this. However if you do proceed, do your due diligence.

Nathan Gesner · Answer

Owner financing. Give Seller the asking price in exchange for a low down and low interest, amortized for 30 years, balloon payment in 7-10 years. There are at least 17 other things to consider. Do you know how to analyze the deal? Do you know the real value? What's the market doing and what is it predicted to do over the next 1-5 years? Can you manage 28 units? Can you manage them well?I would be very cautious about a deal like this because you don't appear to have sufficient reserves for a property of this size without partnering (aka: borrowing) from someone else.

John Clark · Answer

Hard pass for your own sake. You are way out of your league even dreaming about jumping from ONE single-family-residence to FOURTEEN buildings and TWENTY-EIGHT units <insert various configurations to make those numbers here>? You're in little league and you want to jump to AAA or the majors?Nope.You don't have the financial reserves should something go wrong, and most importantly, you don't have the experience in running/handling that big a show.When you figure in the fact that 28 units (or 14 buildings) for $4.5 million means that those buildings/units must be in lousy shape, you have even more reason to pass.Crawl before your walk. Walk before you run. Run before you fly.

Tyler Wells · Answer

Hey Adam!If the seller is open to financing the deal, I would press that option hard. Of the hundreds of hours I have spent listening to BP podcasts, they preach to find out what the seller wants and why they are getting rid of the asset. If they are about to retire and just need some cash to buy their next property, why would they not take 200K and finance the deal themselves? It harbors them from some taxes and guarantees them a monthly source of income. I would love to hear how this goes as I am trying to pursue seller financing deals myselfBest of Luck!

Adam Smugala · Answer

Thanks for all of the questions/concerns. There is a lot to take into account with a deal this size, and its becoming clear that to get into something this large, I need a much larger cash position. The reserves are something I was not taking into account, which is a big deterrent even with owner financing.It sounds like I need to step back and down-size my expectations for being a smaller investor. I've been in pursuit/learning for the past two years, and I own one property already, so I have a decent understanding of the ins/outs, but apparently not at this scale. I know there are stories of new investors accomplishing big feats like this, but I also know it's rare. Thanks all