9 Unit Historical Multi Family Creative Finance Deal

[Kevin Naimoli]

Hi All,

I have an interesting deal here. My seller owns a historical 9 unit multi in New Haven CT by Yale which he has owned for 63 years. The time has come for him to consider his exit from the property. In the last 2 years he transferred the property into an S-Corp from a C-Corp for taxation purposes. To avoid double taxation the asset must be held for 5 years so he cannot legitimately sell the property until that seasoning period is honored. The catch here is that his 10 year mortgage balloons mid August of this year to the tune of $850k. His current plan is to have another investor pay off the mortgage which he would pay 7% interest to the provider of said funds for the 3 years until he can sell the property. This balloon payment would act as the down payment on the property in the form of a first position and a promissory note would be signed so that the end buyer has the right to purchase in the future. A final sale price would be later agreed upon by both parties. The apartments need to be renovated/brought up to-date and rents raised to market rate, this is where the value add lies. Current cap rate is around 6-7%, waiting on rent roll to confirm NOI. With all that said he likes the idea of selling to me, a young architect, based out of New Haven. My issue is that this deal exceeds my experience level nor do I have the money to put up for it. I would appreciate any advice. Thank you!

[Hamlet J.]

Hello @Kevin Naimoli, 

I totally agree with @Jenny Zhang about the complex this deal is. 

I believe that you have too many challenges to consider. I will try to give you some advice on each one. 

1) challenge: You mentioned how the property is in a C-Corp with 3 years remaining on the transferred agreement. Thus, he cannot sell it to you until the end of the 3rd year

     Answer) Can you become a limited partner just for the Property with the right to purchase it at now fixed price at the end of the 3rd year? However, given the complexity of this deal and the various legal and financial considerations involved, it is advisable to consult with professionals who specialize in real estate transactions. Reach out to an experienced real estate attorney and a reputable financial advisor to help you navigate the complexities of the deal, review contracts, and provide guidance on structuring the transaction.

2)Challenge 2: His mortgage balloons mid August for 850K.

This is easy. It can be refinanced or restructured with another company or the same one with longer terms. 

3) Challenge #3: You don't have all the money for the downpayment. 

Answer) Can he seller finance it to you? In addition, you can research traditional mortgage lenders, private lenders, or even potential partnership opportunities with investors who may be interested in this type of property. Discuss your financial situation with a mortgage broker who can guide you on potential loan options based on your qualifications. 

4)You sound like you don't have the experience. 

Answer) Maybe you could explore the possibility of partnering with experienced investors or real estate professionals who have the necessary resources and expertise to manage such a project. A partnership could provide access to funding and knowledge-sharing while mitigating some of the risks associated with your limited experience.

Hamlet