30-Unit Lending, Not enough experience to get funding?

Question

Hey everyone, so I’ve been investing in smaller duplexes, triplexes for the last year and half. No prior experience investing experience, have always just worked a regular w-2 job as a welder. Not high earning 90-120k. 27 years old. 700 credit score.

I have been really trying to push into bigger deals, I have finally come across a 30-Unit in my area off market, that is a great value add opportunity. I’ve been negotiating seller finance options for the past 3 months, trying anyway to get this closed. Knowing that would be my most realistic way to get a break on such a large purchase price. The sellers came back and shut it down, will not accept anything but a full payment.

Talking with my local credit unions, they don't look at me like a serious buyer. Not for somthing of this size, I wasn’t taken serious it felt like. The numbers work, but it seems the issue was me as a borrower. I don’t have the money in the bank like they’d like to see, but I have built relationships with investors who would fund everything I would need to get this closed plus renovations. There was pushback from lenders because “I wouldn’t have any skin in the game” if I used investors. I really don’t know where to go from here. I don’t want to just throw in the towel on the deal due to funding. Because I feel like this is one that could take me to the next level. I do understand their reservations, but there has just got to be a way.

Anyone have any input on this situation?How you pulled off your first big deal when you were starting out? Thank you!

Robin Searle · Answer

I want to say you are doing an amazing job at your age! My best advice is be careful not to overextend yourself. I’m sure other investors will say I’m wrong but I’ve been through several real estate downturns in my life and I’m a strong believer in being at least a bit conservative. If you can’t qualify at this point for this particular property, there may be a good reason. Keep going at the rate you are and you’ll be very successful!

Evan Polaski · Answer

@Luke Tetreault, it sounds like your local credit unions don't have much commercial sized multifamily experience, or are very conservative. There are a lot of details you haven't filled in in this post (which is fine), but you will likely need a key principal to co-sign loan and a contract with an experienced property management company.The key principle will co-sign the loan to help show the net worth and liquidity needed for the underwriting department. And given you only have a year and a half of experience, lenders often want more property management experience on the property. From a "you personally don't have enough skin in the game" this sounds like a credit union who does not work with real estate investors much. I would continue you hunt. Like Robin said, you could stumble on a bridge lender that will give you a ton of proceeds in mortgage, but that runs its own risks.If you want the conservative, but open to lending to your LLC with outside investors, get on Fannie Mae's website and look up the small balance brokers. Again, you will likely need a key principle to co-sign your loan (typical financial requirements are 10% of loan balance in liquid assets and 1:1 net worth to loan balance), but Fannie and Freddie are both well versed in lending to LLCs where the GP has minimal capital personally invested in the deal. Local brokers can give you more color, but I would also be prepared to only get 60% to, maybe, 70% LTV limited by DSCR. So you may need to come in with a lot more equity than you anticipated.

Nolan C. · Answer

Nice job on finding the deal and pushing for seller financing. I think Robins advice comes from a good place but if this is a really solid deal you should keep pushing for it. If you buy a duplex and cant fill one of the units, your at 50% occupancy. Atleast with 30 units you benefit from economies of scale.Is there a way you can work a deal with one of your investors who does have the capital/track record and have them get financing?You found the deal, and if you could manage the property and the renovations you are adding a ton of value. This would be my approach.Best of luck.

Bjorn Ahlblad · Answer

Congratulations on what you have accomplished to date! You need partners who can bring more credibility to the venture and you need to meet with more/other lenders. You will need to reevaluate your contribution to the deal and percentage ownership. You may not be able to swing this one on your own but it will count towards the next one as long as it is successful. All the best!

Robert Rixer · Answer

Talk to an experienced finance broker. They can see if your situation is well and truly a dealbreaker or not. Usually there is a lot more variation in commercial for what a lender would be willing to take on, you just need to find a lender who is more willing to take a chance on a new operator. Worst case they can give you advice on best positioning yourself to lenders on future deals.