Loan options on uninhabitable investment property?

[Nick Zabrecky]

Hello,

I’m a long time listener of the podcast but a first time poster here. I’m located in Philadelphia, Pennsylvania and I’ve been wanting to get into the real estate game and specifically multi unit rental properties for a few years now but my personal situation has not allowed me to.

Recently however a friend brought a very interesting off market property to me located just down the street from where I currently rent. It is a fairly large 2 unit (1 bedroom downstairs and 2 bedroom upstairs) with a 3500 square foot garage on the property that up until earlier this year had commercial zoning on it for close to 50 years. The garage used to be to an old speed shop where they built engines for drag racing cars. I’m a gear head who always has a project motorcycle or car so I am naturally in love with the property but I also think it makes excellent financial sense and is priced essentially as if it did not have the garage with the property.

Now here is where my issue lies. I was planning on using an FHA loan for my first property but before the previous owner died and left the property to his nephew he had begun renovations and it's currently in an uninhabitable state. There's no kitchens in either unit, drywall ripped down in certain areas, some holes in ceiling, etc. It has good bones but obviously needs renovations finished. So clearly it won't qualify for an FHA loan and from my research that I have started doing I may have issues qualifying for a conventional mortgage as well due to the inhabitability of the property. My question for you savvy people is what other options do I have out there for financing? I'm aware of the 203K loan but would prefer not to destroy my potential equity in the property by being forced to hire contractors to do repairs that I can easily manage.

My ultimate goal is to try and have the owner seller finance the property, maybe at least till I can get it into a habitable state and then move into a conventional mortgage, but if this does not work I would like to have a back up plan. I know I’m not picking the easiest first foray into the rental property world but I really like this property and from the homework I’ve done it makes really good financial sense. Any advice you guys can provide would be immensely appreciated! Thanks!