Multifamily Financing Plan

[Ian Dunross]

Hello everyone,

Hope everyone is doing well this weekend! I'm looking at some 6 - 10 unit complexes that require a commercial loan. The loan officers don't mind if I use my own money for the 25% - 35% down payment , or if i get alternative financing. 

I'm going to offer some investors i know two different options. Let me know what you think of this idea..

Option 1 - Investor extends a 2nd mortgage for the financing. Once the mortgage is satisfied the investor will have no other ties to the property..

Option 2 - Investor INVESTS in the property with me in exchange for a piece of the equity. To do this I'd require the investor to co-sign on the 1st mortgage with me. Their investment payoff would be tied to the actual cashflow of the property..

Both types of deals have their pros and cons, ideally I'd prefer Option 1 because I'd end up with total ownership/control of the property..

Would love to get your thoughts!!

[Levi T.]

What your talking about is private placement, even if it's in the format of a note. You need to keep this investor pool within arms length, meaning your already friends with them, otherwise it's a public offering, and the kicker is they have to be accredited investors, meaning wealthy. Private and public offerings are both regulated by the SCC and SEC, no matter how you spin it. I recommend you at least get to know some of the rules.

There was a local real estate agent a few years back in Maryland, that did a equity / payback style deal like your talking about. SEC sued him, forced liquidation, and filed criminal charges for violating the rules. 

As pointed out, getting someone to give you a 2nd position note will be hard to come by. Getting a general partner is your best bet, but you'll find they want a lot more than your currently planning. 

Most will want their equity position to match their investment to deal size or larger, preferred rate of returns, waterfalls, etc.

Best of luck,