bought 3 houses in 6 months. Can I leverage to get a commercial multi yet?

Question

I am looking to hit my 20 unit goal this year, and i'm scrambling for ideas on how to make it happen. Fortunately I still have 6 1/2 months...

Here's the back story:

I purchased a triplex in Oct 2013 (paid $150k worth $200k)

, then the duplex next door in march 2014 Paid $110k worth $160k)

, and I've just tied up the SFR (next door again) scheduled to close June 20th paid $70k worth $120k). I refinanced the triplex into an investment loan 25% using it's equity instead of owner occupied so I could go in on the SFR as owner occupied 5%.

I know I've seriously been lucky with getting these deals. The investor who bought the whole street at auction. We built a good relationship and they have taken care of helping divide things up so I can swing the financing. Everything cashflows $200 per unit thus far.

An 11 unit just came on the market, 3 houses over (I have a thing for this area). They are asking $500k, but I think I can get them down to $450. I'm thinking of trying to get some of this "new" equity to create my down payment. I know that most banks prefer a deed to age 6 months before they will touch a refi. So I don't want to miss this deal because of timing.

So basically all three loans are going to be less than 3 months old in June when I close on the SFR. Let me know what my options are.

Lets get creative! I know there has to be a way to make this work!

Jean Bolger · Answer

I have read on BP about master lease options, although I've yet to use that myself. There are some good threads on this if you search the past forums. Whether it would be appropriate for this instance really depends on the seller's motivation. If they are trying to do a 1031 exchange out of the subject property then there's no way they would go for it. If they are retiring or suffering from landlord burnout then it might be a good option. No harm in asking them, I guess. If it's really a promising property and you could add some value you might be in good shape when it comes time to exercise the option. You would not technically "own" the property this year, but you would control it- don't know it that qualifies as meeting your goal or not ;)

Brie Schmidt · Answer

Well it is too soon to pull out equity with a refi - I am not sure about a HELOC though... You could pitch seller financing for 1 year - by then you will have seasoning and CF saved up to go conventional. But also keep in mind... Once you get to your 5th conventional mortgage you cannot cash out refi or get a HELOC on any property except your primary until you pay one off and get back to 4 loans.... But at that point you might consider going commercial for a blanket loan.

Brie Schmidt · Answer

Banks will require a minimum of 6 months seasoning if you did substantial improvements. If you did not do improvements, the seasoning period is 12 months. Would they consider seller financing? What about taking on a partner?

Kenneth Huddleston · Answer

Pardon me if i'm, wrong, but in this case it seems like a private money lender or hard money lender would be the ideal situation for you. They don't abide by the same restrictions as banks do, so you won't lose to timing. Also, because they are basically just acting as a single person bank, they have no say over what happens to the money or property after they have agreed to loan it to you. You will have to pay higher interest rates and you won't have 30 years to pay them back like the traditional bank, but if its just a matter of timing and getting together a down payment, a hard money lender would be a good situation. You will be able to maintain your independence and yet still have the money to grow larger.

Gualter Amarelo · Answer

The Master Lease is definitely a good potential route. I spoke to my agent today and he actually knows a lot about this property as he considered buying it himself about 8 years ago. It helps having an agent who is an investor as well! We are going to check out the property and see what kind of condition it is in now. There is a good chance this is a burnt out landlord, but I won't know until we get a little more info from the sellers agent. Either way I think I have 3 viable financing strategies available aside from raising private money or partners. 1.) Tie up the property with a contingency allowing the time required to age my deeds in order to use the equity towards the downpayment. 2.) Seller financing where the seller carries the mortgage until I can finance it with traditional financing. 3.) Master Lease where I rent to own (similar to the sleet financing deal, but potentially shorter term, likely a year) Now that I know I have some options. I can make sure to structure my offers around them! Thanks for all the posts!

Brie Schmidt · Answer

Yea, I did $60k of improvements and did a cash out after 7 months and feel it appraised for way less than what it is worth

George Paiva · Answer

I recently tried this on a property owned already for 2 years. I think you will just need to approach the banks and find out what you can do but really with less than a year will be tough unless you can show major Cap Ex improvements. Keep us posted as I would love to do this as well.

Gualter Amarelo · Answer

I haven't approached the seller yet so I have no idea how open they are to seller financing. Right now my money is tied up in houses. How would you suggest approaching the seller in regards to seller financing? I'm not completely opposed to partners, but I certainly haven't considered it enough to like the idea. I like the freedom of not having to answer to anyone but the very very distant bank, LOL