Newbie Seller Financed Deal

[Ron Steele]

Is this a sound investment strategy?

Acquire a building . We get a hard money loan for 50%-60%. We then ask the seller to carry a note for the other portion. Of course we will have points and other costs. We then use our equity to improve and building out the space (we are looking at office building and loft mix). My partner has potential tenants and buyer of the loft. We then get it rented and refinance the property to pay off the seller note and hard money.

The reason we need to get creative is that, no bank will lend without any current income and no much construction experience. We have the equity to do the rehab but just not the rehab and the acquisition. Do these deals exist or is it just wishful thinking? My thinking that the loft sale can return a good amount of equity back and the office space provides some good residual. At the price we are acquiring we would have a nice cash flow.

Thanks i'm a young investor and want to learn how to put creative deals together.

[Simon Campbell]

I see several problems here. #1 in this proposal, you have no equity. If you use hard money for 50% and seller financing for 50% there is no equity here. You will be making two very large monthly payments. I do not see how you "have the equity to do the rehab."

If you have the personal finances to do the rehab then that is different. Remember, your personal finances must also be used to pay on the two loans, cover all utilities, taxes and insurance along with the rehab - all before you have rental income.

#2 Is that unless you plan to turn the building into a condominium, you cannot sell the loft and rent the lower unit. You would need to have two legal descriptions and tax id numbers along with some sort of operating agreement since they are sharing walls, foundation and roof. This looks like a rental.