How to finance townhouse where complex

Question

Want to finance a townhouse in a complex where less than 50% of the units are owner-occupied. Conventional lender (US Bank) will not lend, even with large down payment (>40%).

What kind of lender will?

Matthew Adams · Answer

Ok, so I found a local bank that has an internal private fund for the area. They were offering a $50k min, 3-yr or 5-yr ARM (can't recall total term right now) with a max 2% annual change in rate. No sacrifice of equity, I guess just a loan secured by the property as collateral. Rates were very competitive versus conventional for the first year.

If we come in with a high percentage down, we could pay off the additional required fairly quickly. Seems like a win to me, or, at the minimum, makes it possible.

Susan Maneck · Answer

Try a local bank there like Trustmark or Bank Plus. What you need is a bank which is willing to keep the loan in-house instead of selling it to Fannie-Mae or Freddie-Mac. A local bank that knows the area is more likely to do this.

Don Konipol · Answer

@Matthew Adams

None. You need an equity partner, because the person putting up the other 60% is taking on an “equity” type risk.

This could be a candidate for a high risk, high return type accredited investor syndicated situation.

Your projections will have to stand intense scrutiny. Your past track record will be validated. And investors will insist on severe penalties for missing projections. As per your 40% in, that should buy you 40% equity. Putting together the whole deal could get you another 10-20% ownership. Once the investors receive a preferred return when the property is sold, or refinanced after stabilization and new appraisal, you should be able to get 20-40% of the rest of the gain as a “promote”.

Debt money is usually less expensive than equity money. But, there’s more risk to the sponsor utilizing debt, and sometimes equity is the only way to get the deal done.

I have syndicated probably 400 mortgage loans, commercial properties, etc in the last 20 years. You don’t make 100% of the profits, but deals that otherwise are hard or impossible to get done are relatively easy to close.

Matthew Adams · Answer

FYI state is Mississippi

How to finance townhouse where complex <50% owner occupied?

How to finance townhouse where complex <50% owner occupied?

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