Strategy to financing Multifamily

[Musammath Khan]

Hi folk! I hope all are well. I have a strategy on my mind for my RE investment. I would like to share it and desperately want some suggestions on it. I would really appreciate if the experienced RE folks share the Pros and Cons of this strategy.

I am planning to buy a multi family in Bronx. I was thinking of getting 80% of the value financed by a bank and (20% or 15%) down payment by Private money lender or (Hard money lender if I don't find a PML). After a year, I'll refinance and pay of the first bank mortgage and the down payment money to the PML or HML(with interest). I also have additional funds available to me in case I am not able make enough cash flow to pay of the interest. The benefits I think I'll have-

1) low interest and APR

2) No monthly PMI

3) No Upfront Morgage Insurance( Which are thousands on the price of the property I am looking at)

Now I would request you guys to kindly share your valuable thought on this strategy. Thank you in advance. 

[Dave DeMarinis]

@Musammath Khan A deal generally needs 3 components to work. Equity, Debt and Execution.
Owners and Partners Get/Provide Equity
Lenders provide Debt
Investor does, leads or manages the Execution (renovation, property management, repositioning)

Where does equity come from? 

1. Purchase below market
2. Forced appreciation from renovation and/or NOI increase
3. Down payment

PROBLEMS: 
1. Many banks won’t finance in the structure you propose. They prefer the downpayment comes from you. Talk to the lender early about your plan.
2. It doesn't make sense for a HML (or Private) to do this deal. There is no equity protection AND they are in 2nd position.

SOLUTIONS/SUGGESTIONS
*Huge plus that you have reserves.
1. Are you buying under market, if so you can use HML for the 1st position, stabilize the asset and the refinance with long term financing and payoff HML
2. Bring in an equity partner to fund the down payment. This will be much more expensive than HML or Private but it is more attractive and fair for your partner and better sets you up for success. Ideally, it would be a partner with money AND experience.