Multi-Family Property & Major Rehab - New Investor

[Jared W Smith]

Hello all, 

New here and wrapping my head around the logistics within a buy-and-hold strategy on a rehab multi-family property. I am in NY, not NYC- Westchester & Rockland Counties. I am looking at a 5-Family property on a .5 acre lot. Probably a "B-" neighborhood. It's about 5,000 SF with 3-2bdrm 1 bath and 2-1bdrm 1 bath units. The area is zoned for apartment, low density (value-add?). This property has been vacant/decrepit since I can remember (at least 15-20 years). The reason the properties and others like this strike an accord with me is I am an architect and utilizing my professional experience and connections, I know I can turn this into a rent ready building fairly easily.  (This one is likely to be a full gut.)

In looking at financing, being classified as commercial due to 5-family, how would you go about financing the construction? I'm inclined to contact a local portfolio lender. I am assuming I will be able to get the property for a very low price. What typically would I have to put down for construction loan? In my research, the loan can be given based on expected rent rates for the area. These rates are dependent on the lender I assume. (75%, 80%?) 

Anyone have portfolio or other lender contacts local to Westchester & Rockland Counties (NY) that they've used?  

Any insight or contacts would be greatly appreciated. Thank you   

[Matt Popilek]

One Side Thought I used on my first MUF. If you can buy the property for cheap enough you may consider purchasing the property out right prior to involving the lender. Then proform the property based on expected market rate rents. I would "contribute" the property to the bank as the down payment.  Then you can get 100% or more of the construction financed.  

In my case I bought a 14 plex for $10 from the City - I spent about $30k cash on abatement issues. Once that was done I contributed both buildings as collateral to the bank for $450k in a construction loan.  In essence all my construction costs were covered. If you figure $30k down and $450k in a loan my percentage down was about 6.5%.

Obviously you need to own the property first in order for this to work, and you need solid market rate rental numbers you can use to get the commercial appraiser to appraise the property high enough to get 100% of the construction cost covered.

If I had this to do over again I would have provided a construction budget of the FULL amount the bank would approve...so for instance if you could get 75% LTV from a bank I would make sure my total construction budget would be 75% LTV. Regardless how much you need to spend having the extra funds in case you need them at the end is very helpful.

I gave them a construction budget of $445k it appraised at $650k which was MY Valuation I provided the appraiser and bank. So I got 69% LTV approved because that was what I asked for...I would have been better off asking for the 75% from the get go. There have been little things I didn't figure in, and that buffer would have prevent heart burn at least a little.