Need 1.75M tomorrow to keep my Deal

[David Walkotten]

What would you do... I have had a 40-unit multi family purchase tied up in a purchase agreement since February 9 of this year. It is being financed thru Freddie Mac and we have had a ton of hiccups with property condition (Including ceilings collapsing) but are now through all the hiccups. Brand new city certs on all 4 bldgs. The seller has signed 4 addendums for additional time. I get their concern. This will literally close in 13 days and the Seller will not sign an addendum past 8/30. Small chance if I pay an additional 50,000 he will extend it. I’m paying 2.1M currently. What should I do? My investor/partner is putting up 400k but I don’t think has another 1.75M to bridge it. Who knows if we could even close the deal tomorrow... Advice?

[David Walkotten]

@Stephen Mayers thanks! @John Casmon @Kyle Ransom I can share more on the deal. 

The property is a 40-unit garden style complex with 4 buildings. Built in the late 60's/early 70's brick. All units are 2BR 1BA and around 850 sq ft. Market rent is $800-875 for this style unit/property in the area. The property is probably best categorized as Class C+. 

I had the property under contract from February 9-September 18 when we finally closed. 2.07MM + 60K in Buyer Concessions to hang on to the deal and have the Seller certify all bldgs. 

Financing wise, I brought in a private equity partner for 25% and they contributed 25% of the PP. The LP also receives a preferred return. On the commercial Freddie Note the numbers were: 4.88% interest; 80% LTV loan; 10 years fixed; 10 add'l years floating for a 20-year term; 30 year amortization period; 1 year IO up front.

The rent roll went from 27.3k at contract Feb 2018 to 29.4k at closing Sep 2018. As of Dec 1 2018 the rent roll will be 31.1k and fully leased 40/40. Tenants that were behind have been catching up and appreciate our attention to fixing their problems. 

Management expenses were extremely high with an on-site manager. We switched to our solid management company and will reduce management costs by around 25k on the year if you also factor leasing the 40th unit that was previously taken by the on-site manager. 

I bought at a 5.5 CAP and it is currently a 6.5 CAP. Within 10 months it will be a 7.6 CAP. This is factoring in the 60k paid up front into the Purchase Price.

Property Value was 2.1MM at purchase and will be 2.6-2.75MM within 10 months. I plan to hold indefinitely at this point and refi at likely 10 years. 

Let me know if you have any questions!