Up-Sizing from 4-plex to a 70 door complex

[Gregg Heminger]

Okay - closed on our first 4-plex last August and now we are looking at an opportunity to expand rapidly into a 70 door apartment complex.  The seller has offered to put up approx half of the down-payment, we have $100k, but still need something in the neighborhood of $200k.  It will be a very solid investment - any thoughts on how you've structured loans with subordinate creditors, and how you approached investors regarding terms would be super helpful.

Thanks BP!

[Seth Williams]

Private financing is super flexible, so you can really do whatever you want. I would make sure you DO do a few things though.

1) Make sure any bank / institution financing is ok with having a second on here, and what position they will want. Most sellers want first position, but that won't be possible if you are getting bank financing, since they will also want first position. They also might not be ok with any second, so you might have to sign a promissory note and attach if afterward. 

2) My bank, who is ok with 2nd loans on purchase, wants to make sure the terms aren't better than their loan, IE. Faster re-pay, better rates , etc., so you might want to clarify, #1 & #2 first. 

3) Structure a good deal for everyone, I like something with an exit strategy, so maybe a 30 year amortization, or 25 year, interest and principle, and a good rate, maybe 4-5 percentage, keeping in mind #2 and #1. Could do a ballon of like 3-5 years or something like this, and the capability to extend. Ideally, you improve cash flow, lower expenses etc, and just go back to the original bank for a refinance / re-appraisal, pay off the private lender and be done with it. 

Good luck, post later what you end up doing.