Who will fund a newbie?

Question

Hey BP,

At the time of writing this post I have found a 12 unit with a lot of upside potential in a strong rental market. I have the down payment, not a problem, my biggest issue is trying to find a lender for a first timer like myself. Has anyone had a great experience with a nation wide lender? My biggest problem is that my company is simply too new and I don't have the two years of income statements I think.

I am running out of local banks/credit unions but will keep everyone posted with updates. I hate to let one slip by simply because of money. Willing to take a partner on it as well if you can get pre approval. I am new to apartments and this would be my first one, I just think there is a lot of opportunity here. Thanks for your time everyone!

Greg Scully · Answer

@Zachery Buffin - We were in a similar situation where we had a tough time with traditional banks because of our experience level.  We ended up with a bridge loan.  @Scott Hollister was a great resource for us, you may want to reach out to him directly.

Daniel Holmlund · Answer

Hi Zachery,

You might consider bringing in a partner that has a longer track record of real estate investing and who has built out an investor network. A partner could help bring more equity and debt investors to the deal.  John Corey's suggestion of a lease option would be a good way to go if the seller is open to the idea.

John Corey · Answer

Have any of the lenders indicated that they will do the deal at a specific LTV? So you have a target. If any of them are more concerned about the experience you and your company bring to the table, is it clear what the gap is?

Alternatively, you can look at a lease option or management contract where you take over operations and have locked the sale price. Raise the rents, turn the place around in terms of the things tired-landlords neglect and then purchase with the improved equity in the property. Yes, I am simplifying things. Mostly to understand your thinking and what you are dealing with.

When the problem is bigger than the price, the focus shifts to fixing the problem and not the price. A landlord who needs out now might like you are young and full of energy.

John Corey · Answer

Zachery,

What LTV are you targeting? My experience is equity can be used to get a lender onboard. When they have less risk, they are a bit less concerned about your experience.

Bringing in a partner with the extra cash or with the experience can get you there.

Local leaders who are able to look at the detail are the ones who will be more flexible if you can bring in the extra equity. They can see you as a long term client if you can deal with their concerns on the first transaction.

Zachery Buffin · Answer

Hey Daniel,

I am totally willing to take one on, as I said if they can get approval through their network I will gladly bring them in on the deal. I just haven't found any one that is both advanced enough to do that and willing to work on the project. More because they are to the point in their careers where they don't touch anything under a million or more than anything to do with the deal itself. It is just a little harder for me to meet people face to face as I am currently overseas, a lot of people don't like to operate remotely (completely understandably) with folks they have never met.

As to the leaseback and creative financing options. I am also open to those and have proposed them in emails sent to the broker representing the owner but haven't received any replies from them. I obviously don't want to start cutting people out when they are working on the deal but I have begun doing the research to find the owner's contact info so I can try to talk to them directly. I feel like the broker is doing them a disservice by not responding to me and I am really trying to find a way to get this deal done.

Zachery Buffin · Answer

Thanks for the reply, I agree that is what I need. I should have been more specific in my question, what I am really asking for is the references, if anyone here happens to know a company like this, have their contact info, a review of the process and what the company was like, etc. Again thanks for taking the time to reply and if you know anyone that could help I was very much appreciate a PM or response here!

Stephanie P. · Answer

@Zachery Buffin

You need a mortgage broker that works with portfolio lenders in the commercial space.  For a purchase, with good credit, 75-80% money is available if the property isn't rural.

Stephanie

Zachery Buffin · Answer

Hey,

Thanks I will definitely reach out, I appreciate the help!

Zachery Buffin · Answer

Sorry John,

Duh, right? Sorry should have mentioned that, I have the means for 15% to 20% on the property. If the deal is still available in 4 months I could have the reserves for up to 30% DP. So between 85% and 70% LTV for the purchase depending on the wait. That is before talking to the owner about a carry back for any extra DP.

Currently the rents are below market by $100-$200 per unit (some units are more undervalued than others) so a refi in two years would net a hefty profit. The property is also large enough to build, eventually, a second building. The building is brick with a metal roof and a newer A/C unit, they are asking way too much currently but if they have already come down 100k from their original price. The owner seems motivated, I am guessing they are a tired landlord at this point. I am having to work through an intermediary currently not directly with the seller, it is obvious (to me at least) that the guy advertising it doesn't understand (or is outright fudging numbers) commercial real estate valuation but if he can be made to understand this can be a sweet deal.

I just want to make sure I have funding secured before I really press in oil this guy to get the deal done. I don't want to have everything laid out and the deal complete then not be able to close because of money.

Who will fund a newbie?

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