Purchasing a 4 unit property that needs tons of work - Financing Options??

Question

Hello, 
I am purchasing a 4 unit Investment property in NJ that needs tons of work, new floors, appliances, fixtures, ROOF, tiles etc. It is a short sale and I'm getting it for $70k. I can either pay cash for the property but then it would leave me very little for repairs.

I was hoping to find some options either to finance the property or get a rennovation loan. Anyone has any ideas.

The property once fixed up will bring in $1,200 rent from each apt. PLEASE HELPPPP!!!

Thank you

Jon Holdman · Answer

SFH = single family.  You may be able to just get conventional financing on this.  You would need about 25% down, so you would still be over the magic $50K minimum where you'll get someone interested in making the loan.  But the house will need to be "livable", and that might be a stretch with the work you're describing.

Another option is a construction loan.  Like hard money, but from a bank and at a more reasonable rate.

Hard money may be an option.  You may still need a down payment but you might be able to borrow part of the rehab money.

Yet another option is to pay cash and use credit cards or your 401k for the rehab.   Then refi out of all this into a conventional loan.  If you just use the price plus your documented expenses, you may be able to do the refi relatively quick.  If you can hang on for a year, you might be able to use a new appraisal.

Ali Young · Answer

4 unit property is considered the same as single family. Just use fanniemae's 203k if you are considering living in one of the units. If not get a hard money and then refi to SFH conventional once repairs are completed. Also, make sure you have your out before you enter into hard money loans

Account Closed · Answer

If you have excellent credit, you should have cheaper options than a hard money loan.

If you have equity in your house or a paid-off car, you can get a HELOC or a bank loan secured by the car.  In Oklahoma we have lenders that will do HELOC's up to 100% of the appraisal value of your residence.  The rates on those are around 8% with no closing costs - much cheaper than a hard money loan.  You can also get an unsecured loan from lendingclub.com for up to $30k or so.

These are all short-term options that you can use for rehab expenses, then pay off with a conventional loan after six months.

Bill Gulley · Answer

Depends on requirements, you may need a license to remove it and if there aren't many contractors around you could be gigged. They will sell all the issues and talk about approved containers for disposal too. Turned out here, an approved container was a 15 mil plastic bag inside a cardboard box with all sides and top taled off with duct tape!

You might consider doing a good clean up before testing too. Asbestors can be found in old boilers, duct work, attic and insullation, floor tiles and rolled flooring, old carpet pads and in plaster and lath. There were some creative uses for the stuff as it was an insulator and a fire retardant.

Expensive is a subject term, but yes, it could be expensive to clean up. There is no issue having it in a building if it is  fully contained and won't be disturbed through normal use, that's the view here. I suggest you call your local building regs folks and inquire about this issue and how they want to deal with it.

Raza Rizvi · Answer

Is asbestos really expensive to remove?

Bill Gulley · Answer

I'll bet lunch that there is asbestos, that's a sure thing unless it has been removed in the past.

Financing, check with your local (city) economic development office as HUD has had funds for rehabs in targeted zones, with the age of that property sounds like it might be an option. Good luck...

Raza Rizvi · Answer

John, 
My contractor quoted another 70K for rehab so that's what I'm factoring in. Similar properties in the area are around $230K but obviously in livable conditions.

Stephen, 
It was built in 1912 - it has been checked for lead and its negative. I will add asbestos to my list of items to test. The short sale is approved so I don't have room for negotiations. Either i proceed with the property or walk away from it.

BTW this forum rocks....

Stephen Masek · Answer

When was it built?  Does the Rehab. estimate include dealing with lead and asbestos?  If not, watch out for big change orders, or problems with regulatory and tenant lawsuit liability.  You may be able to get a lower price by having agood local consultant perform an asbestos & lead survey, then use the findings in your negotiations.

Ryan M. · Answer

How much rehab money did you budget to get it rentable?

Raza Rizvi · Answer

Thank you John - lots to think about.