6% return for downpayment for NYC triplex under contract?

Question

I was pre-approved to buy a house in NYC (a goal I've had for a long time)!  I now have an accepted offer on a triplex in the Bronx.  I'm looking at a 10-20 year hold and rent strategy.

Loan requires only 3.5% downpayment, with purchase price of 515k.

I'm short on cash, I just used what cash I had for a seller-financed deal.

I was told by the lender that I would qualify for a downpayment assistance grant for 15k but that fell through (the program only allows well-known lenders (i.e. Chase, Bank of America, etc and they were not on the list).

I'm looking for cash for 3 things:

• 1) downpayment (3.5%) 
• 2) closing costs (5%) 
• 3) cosmetic repairs (up to 50k)

We are doing a concession for 15k to the seller so that reduces the cost of closing but without the grant that would have been 15k I'm still short 40k just to close.  After closing I could get a 203k rehab loan for up to 30k I'm told.

But, I need help to close.

I'm asking friends, investors, etc for 50-100k to help me close on this deal (and possibly also cover basic cosmetic repairs vs. taking out the 203k loan).

In exchange I was looking to pay back the loan at 6% over 24-48 months (depending on the amount borrowed).

Does this sound like a good deal for the personal lender?  Are there people who are willing to do this?  I know there are hard money lenders but I'm not sure the interest rate or term would work for them.

Are there any other grants or things I should be looking at?

Does anyone have any ideas or comments based on personal experience?  Thanks so much for the help!

Libby

Wayne Brooks · Answer

A couple of problems.

You are Not allowed to borrow your down payment on a FHA, and your down payment money source has to be verified/seasoned....in your account for 2 months prior to closing, unless it is a gift from a family member only.

Any additional debt payments you take on would have to be calculated into your DTI, to still qualify for the loan.  I'm guessing another $1-2k/mo in payments would probably disqualify you.

I'm guessing the property doesn't even qualify for the standard FHA loan, since it needs $50k in cosmetic repairs.

No one in the lending business is going to give you a second mortgage with no equity.  Most won't/can't lend on an owner occupied property anyway.

The203k is what you should be trying to get Now, for the purchase and renovation, in one loan.  But, you'll still need the cash to close.

On a side note, this is why "preapprovals" are given little weight by sellers/agents.....your lender gave you a preapproval when you have absolutely no cash, and no chance to close on the loan.

Libby Tucker · Answer

Rebecca - congrats!  And thanks for your comment.  This property is in the Morisania area, on Tinton Ave.  Some suggestions I got from a friend who invests in Philly:

1) Try asking the seller for financing

If they have equity in the property and they are an investor they may want the option to carry a note at 6%

2) Try taking out a HELOC (~4% interest)

I have another property with ~250k equity, but I maxed out the loan amount on this triplex and that is really risky to try to get a HELOC because I could get denied with the new loan.  From what I understand you can have up to 5 FHA loans (if you meet requirements).

3) Hard money lender

Find a hard money lender, but this will run me 16-18% interest.  Can possibly leverage existing equity on existing properties, but in the triplex property I would not have equity yet.  I'm planning to explore this.

Rebecca Peters · Answer

Hi @Libby Tucker I just went through the process of buying a duplex in the Bronx. Where in the Bronx is this property? I'm on 167th street just off of Webster Ave.

My experience with FHA was a fairly smooth one. As mentioned above, all of my income had to be sourced. Even my friend who paid me back $1k for a flight I bought for her. They asked for her bank statement. I had to ask my father for a gift fund towards my down payment and he had to sign a document stating that it was a gift. I tried to get creative and take out cash advances from my credit cards, but my mortgage broker advised against that saying that most likely would not fly. Luckily I was able to get some help from my dad so I did not have to go down that road.

I have a great mortgage broker that may be able to offer you another opinion. The one thing I can think of that may help is getting somebody to own the property with you that has the money for the down payment. I guess in that case, this person would sign a gift letter, but you both would be on the title. I would certainly double check this, but may be a way for you to get around this.

Please keep us updated on this deal.

Libby Tucker · Answer

There are 9 bedrooms.  I would live in the 9th bedroom and rent the other 8.  I don't need to do all the repairs at once. It's mostly livable but I would need to replace carpets, paint, perhaps upgrade some laminate flooring, etc.

If friends/family cash gift works, all else is okay?  Could I ask a friend to lend money to a family member to give to me as a gift?

Rooms rent for 600-800/mo each, 8 rentable rooms, mortgage is covered with cashflow, hence the reason I could guarantee pay back to a lender.

It's NYC, hence the reason getting creative often feels like the only option to get in the game. :)

Vincent Crane · Answer

Yeah there's some big issues here... First of all, are you planning on living in the property? You can't get an FHA 203k loan unless you live in it, and they're pretty strict on repairs, normally only lending up to $30k. It looks like you live in Seattle, right? Also, a purchase price of $500k and you're only renting out two of the units? what are the expected revenue and expenses here. I don't think think is a good deal. It's definitely looking cashflow negative.

6% return for downpayment for NYC triplex under contract?

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