Need guidance with seller financing on a commercial property

[Jaston Robinson]

Hello BP I recently came across a lead in Central Falls, Rhode Island. This deal is two 3 families on one lot (Cant NOT subdivide). These buildings are completely paid off & have been in the seller's family for almost a century! Little maintenance however, there are some big capital X (siding one house, 3 unit rehabs, potentially hard wire smokes in each house & a junk clean out). My strategy is BRRRR, is that the best plan?

The seller's situation: she is gearing up to retire & would like to use the money from the houses to put towards a condo else where. She also does not have the ability to do the updates to make the house market ready. Lastly, she is requesting to staying & pay rent for 3 months while she finds a new place to live. 

My questions: First what are y'all over thoughts & advice? How can I get an accurate purchase price for this property where I'll be able to refinance into a low interest loan after the rehab? What will that refinance look like? & how does the seller get paid off? How can I combine seller financing & other forms of financing to make this deal happen? 

Thanks in advance

[Anthony Thompson]

@Jaston Robinson how much are the rents and how much is she asking for the property? In other words, how do you know she’s not asking at or above market value for this - why is this particular property a deal? Just because there’s seller financing doesn’t mean the seller isn’t asking more than the property is worth.

If you were to buy this and make the repairs and then go to a commercial lender for a refi, that lender would do an appraisal and then be willing to make a loan at a certain loan-to-value ratio, for example 75%. So you'd need to know about what that ARV will be, that the appraiser will determine, and then you'll need to subtract the new commercial loan amount from the previous owner's private loan balance, to figure out how much you'll need to bring to the table to pay her off at the refi.

So you’ll need that amount, plus anything the current owner (seller) wants you to put down for the private loan, plus the money for the repairs, which could add up to a good amount so you should have an idea of about how much that will be going into it.

Also, have you discussed interest rate (if any) and term with the seller? If you can get seller financing at 2% and a 30 year term with no balloon, then that would be better than any commercial loan you could get, so you could just stick with that and not do a refinance at all. But it depends on being able to negotiate favorable seller financing terms upfront.

A good place to start is to propose a 30 year fixed term, for example if she wants 300K you could propose 360 monthly payments of $833.33. If she is sharp or she is using an attorney, then that probably won’t work and she will come back asking for an interest rate, but it is nice to try for no interest and sometimes it works which is awesome when it does.