18 Unit Multifamily Creative Financing

[Derek Mountain]

Hi BP,

I'm working through a 18 unit multifamily Kansas City negotiation and would like some help thinking through deal structure, if it even makes sense.

It's a classic mom and pop mismanaged property situated in a good area but needs a lot of work.

What I know:

• 12 - 1 bedrooms 
• 6 - studios
• Has a mortgage of $248k left at 11% interest rate 
• Current Rent Roll. Majority are below market
  
  • $7,355 in expected rents
  • 3 studios vacant ($500 ea)
  • 1 studio free rent for manager
  • 2 units not current ($900 total)

• Monthly Expenses (from 2017 taxes)

  • Mortgage: $2699.58
  • Taxes: $532.39
  • Insurance: $530.28
  • Repairs: $1,157.67
  • Electric: $165.43
  • Trash: $178.81
  • Water: $850
  • Gas: $41.07
  • Management: $700
  • Cable & Internet: $176.05
  • Total: $7,031.28
  • Net: -$626.28
• Pre-rehab rent raises could get monthly income to $8,500
• Opportunities to drastically reduce expenses. He admittedly said water has been an ongoing headache
• Needs complete rehab, I've seen his bids and he's quoted $500k to get everything in tip top shape.
• Post rents would be in the $14,000 range

He's been talking to an agent who created a post rehab pro-forma valuing the property north of 1 million dollars so he's stuck at this valuation for now. His accounting is almost non-existent which I believe has been prevented him from refinancing or selling. He's fallen out of escrow a couple times due to lender concerns. I have a really good relationship with him at this point and he's open to any ideas of a structured deal (partnership, seller financing, etc).

Any creative ideas on how I can make this work? 

Obviously I'd love to strike a deal with him but I'd also like to help him create a game plan, even if I'm not in the picture.

Thanks!

Derek