8 unit opportunity, curious as how to finance best

[Dan White]

Been negotiating and gathering info on an 8 unit building in Clayton, MO, a very affluent area of St Louis.  

Rents are at 5,400 monthly and could be brought up to around 8,000-8,200 with about 70k in repairs.  Great value add.  I'm looking at it to buy and hold myself.  

The seller wants 640k.  I haven't yet agreed to that.  My last offer was 550k.  At this point, he is open to financing part of the deal at prime interest rate.  Right now I believe that is around 5% although he had mentioned 7-8% is what he thought it was.  Regardless, he will carry anything over 400k.  He wants 400k at the sale.  

My dilemma is how to structure this thing with no money down and keep a positive cash flow, even if that means I have to manage it for awhile.  Would it be better to go for conventional or commercial to obtain these objectives? What might a strategy be to refinance this thing best?  Appreciate suggestions from those more familiar with this process!

DW

[Hadar Orkibi]

@Dan White first I will talk to local bank, see if they will accommodate Seller financing as commercial loan. 

So lets say they will found you to 67% of $600k, that's about 400k at closing in cash to the seller. 

Then the seller can carry back the rest at 5%, balloon for 10 years, you can ask for IO for the first year too. Amortization 25-30y. 

Note: the local bank may want you to have some skin in the game so it is likely that you will need to put 10% out of pocket. 

If the property returns 96k per year and it costs you $670k it may not be cash flow positive at 100% financing.  That is taking in account that you mentioned NO money down. 

The No money down would be a possibility if the ARV is high and you refinance the property. basically a BRRRR.

From the numbers of the cost and income at say 5%-5.7% interest rate I don't think the property will cash flow before Tax if your debt is $670k. 

did you run the numbers in a calculator, working out the NOI etc?

Another way to look at it, if it is possible, is to Carve out one unit out of the 8 and sell it to reduce debt on the remaining 7. But that "Condo Conversion" would be depending on many other factor.  The layout of the building, the construction, and of course the City.