How to buy my first multifamily property

Question

Hi,

I am looking at a couple properties off of loopnet and there are some multifamily properties that interest me. There is an 8 unit but it is in the nicer area, so it is for sale for about 2 million dollars.

Basically, I do not have 20% down on $2 million. I am hoping to get some creative financing ideas. Please help! Thank you!

Francisco Feliz · Answer

Seller financing would be one form of creative financing. This is when you can essentially have the seller act as the bank and you will pay them monthly payments (interest and "principal") based on the terms you guys agree on. If you search above, I'm sure there are BiggerPockets Blog posts and other forum posts on it.

Another way is, depending on how much you have, you have your deposit, the bank finance another portion, and then the seller carry the rest of the note. For example, you put in 10%, the bank puts in 60%, and the seller 30%. Tough sell, but you can never get anything without asking. Worst thing that'll happen is they say no.

Same thing goes for asking for a lease option (renting to own), where the seller allows you to make monthly payments while occupying the property over maybe 5 years that all go towards purchasing the property. And in case you have any other properties (like single-families, can't tell), a home equity loan or cash-out refi may be worth looking into.

There's probably a lot on creative financing somewhere on this site as well. And there are  probably others who can chime in on what the situation needs to be like (e.g. seller's motivation level) for these options (or any others) to be likely. Hope this is a start.

Darryl Dahlen · Answer

I'd like to see the numbers on an 8-unit that is going for $2MM. Is there enough fat on the deal to make it worthwhile? I financed over 20MM in multifamily deals last year. ALL in Dallas and Houston, and the $2MM sized loans I did were for 76-125 worth of Class C units. Why are you sold on this property when that kind of money can buy so much more?

As to the financing, since the property is likely a Class A/B property, or better be for that kind of money per unit, lenders tend to be pretty aggressive with their terms, but are you the kind of guarantor a lender is looking for on a $1.5MM+ loan? You can offset experience, to some degree, by having a professional management company involved (which a lender is likely to impose), but this is an 8-unit so it's kind of a give and take to have a PM company involved and pay that fee every month. Will you have strong post closing reserves? Lenders like to see anywhere from 6 months of PI and up post closing.

You could ask for a seller financing component, but the senior debt lender will factor the numbers for both loans under their debt service requirement. Since you're new, I wouldn't expect a lender to allow for a high(er) CLTV seller second. They're going to want you to have as much skin in the game as possible.

I can't see a high rate mezz component working as that would take eat into the profits quickly.

Not trying to rain on your parade. Just trying to give you some insight from someone who does multifamily financing for a living.

Brent Coombs · Answer

@Rachel Pervis, I got the impression that @Tanya Lam was just interested in owning that two million dollar property. Numbers? Who cares?...

Rachel Pervis · Answer

Hi @Tanya Lam I would definitely read @Darryl Dahlen post, the points that he is making are valid. I noticed that others are providing ways for financing; however no one is asking what the numbers are or if they make sense especially when the deal is for only 8 units at $2mil.

Mike S. · Answer

@Francisco Feliz right on point! good luck @Tanya Lam

John Cohen · Answer

@Tanya Lam did you ask for seller financing?

Jeff B. · Answer

Eight units would be commercial financing and the LTV would be in the 70-75% range.

You will need hard money or seller to carry the note.

Mindy Jensen · Answer

@Tanya Lam, Brandon Turner is hosting a webinar tonight about investing in apartment complexes. Sign up here. He may have more ideas than the ones posted above.

Brent Coombs · Answer

@Tanya Lam, so, what amount DO you have 20% down for?

We ALL like window shopping - but then the REAL world intervenes...

Steve Haight · Answer

Tanya,

Welcome here to this forum. There is great info and awesome connections I have made here. Check out some of the podcasts here great training material in areas you need help in. What works for me is to spend as much time on BP, the more time I spend on here the more I get back. I am on BP to pay it forward and volunteer some of my time to new investors so read my bio and if there is anything I can do just holler.

Happy Investing

How to buy my first multifamily property

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