Owner finance for 6 months then Refi - Is this strategy valid?

[Samuel Hall]

I've spent all day on the phone with lenders (9am-2pm) and may have found an acquisition strategy that will work. I plan on buying 2-4plexes. According to the banks I would have to put 25% of the purchase price as a down payment. I may be able to do that. once. My goal is to have repeatable success. However if I were to get title to the property through owner financing I would be able to refinance the property up to 75 percent of the appraised value, using my equity as the "down payment." I would also be able to wrap origination fees into the loan and make my out of pocket costs $0. I stated this scenario to a lender and they said it was feasible. 

Here is my plan, let me know if my logic is flawed or if I am missing an important component:

- Make an offer of 70% of ARV minus construction costs.

- Convince the seller to agree to a 6 months owner carry (lenders require a 6 months "seasoning" before I can refi) 

- perform rehab, get tenants in place and get the place cash flowing

- After 6 months refi. bank orders the appraisal.

- I would provide income data and before-after pictures to convince the appraiser of the forced appreciation. 

- With the increased value I use the %30 equity as the "down payment" and wrap fees into the loan. 

- Pay Seller financing note off

- If there is enough meat in the deal I would pull equity out to finance the next rehab.

- Rinse and repeat for the next deal. 

Thanks for your attention. 

[Farrukh Amini]

Good plan. A couple of call outs:

If you are actually able to get the seller to accept a 30% discounted offer less rehab costs with no money down and seller carry, please let me know where to sign up for your deal negotiation course because that is some ninja level negotiation skills. 

I’d recommend to negotiate seller carry for 12 months to give yourself enough cushion because refi takes time. Since the seasoning is 6 months, you would start the refi after. Also keep in mind with most commercial loans that the “seasoning” period start from the moment you place tenants in.