MF - mix use C property in B neighborhood- no CO

[Andres Vanegas]

Hello all,

First thread started so here goes nothing. 

I am looking at a mix use property - 2600 sq building. ft, 3- 2BR, one retail space, one double garage, property size is 4962 sqft. Walking distance to public transport. C building in a B neighborhood. Rent is 83K (54k from residential units-rented by nursing home-, 21 from the retail, and 7k from the garages), NOI is about 50K. No vacancies currently. Property is listed for 775K, seller is asking for an all cash offer. 7.0 cap rate. Built pre 1930.

Property has been on the market for some time. I believe over 120 days. Likely because there is no Certificate of Occupancy for this building. Reasoning is that the building was constructed prior to these regulations being implemented and "grandfathered in." Broker says it is legal though. Seems pretty clear as to why an all cash offer is required on this property, no bank would approved of a mortgage on this.

A buddy of mine who I am working with is scared by the fact that there is no CO on the property. He has some experience in Real Estate through management of his parent's properties. I am a tad more optimistic but understand the fear.

Given that deals must be made in this market and are rarely found  a couple of ideas came to mind. 

First, get the property under contract, go through due diligence primarily inspection, assessment of spaces...run the numbers of getting this property a certificate of occupancy and bringing it up a B property... if the numbers do not work walk away. A tad fuzzy on the process/length of time/money on acquiring a certificate of occupancy, I'm sure that varies county to county and state to state. Any insight would be helpful.

Second, in regards to financing the deal itself, since there is no way to get a mortgage and I do not have 775K all cash, use a private money lender until a certificate of occupancy is acquired and necessary renovations executed to bring up to a B property and refinance into a conventional mortgage from there. Or offer seller financing, at full price, using a private money lender to finance the renovations and then move into a conventional product. Both of these offers would be presented concurrently. 

Also, a further question on the seller financing. Are real estate agents likely to recommend seller financing? I do not know how that affects their commissions and what not. I do know they have to pass along all offers to the seller though.

Further, in regards to transferring the title, would that be an issue without a CO?

This would be my first deal and it is definitely not ideal. Making it work would definitely be a great leap of confidence and a great start to my investing career. Any and all help is welcome, I have thick skin so don't be afraid to throw the hard blows. Also anything I haven't considered and should be considering would be appreciated! 

Super interested if anyone has pulled this off before!