Anybody doing low down loans based on 100% occupancy & cash flow?

Question

Hi All,I was just in Indianapolis again to look at apartments and I've found a winner. My issue is, I don't have $225k to put down. Now I will absolutely JV with somebody if the deal is right but I'm hoping to get a loan instead. Are there any lenders who will loan nearly 100% of the cost of the property based on the fact that it's 100% occupied and has great cashflow? On a side note, it's in great shape and has an amazing PM. I'm pretty sure what I'm asking isn't realistic but I want to make sure before I start looking into a joint venture. Thanks for any and all input.

Salvatore Lentini · Answer

@Jeb Brilliant I've never regretted talking directly to the seller. I would absolutely take them up on the offer. Not open to owner financing sometimes just means that they don't want to do 100%. They may be willing to carry a 2nd at a high interest rate. Financing $1-2 million at 4-5% is a lot different than $200K at 10%. It could be enough for your "down money". They may have to be ok with a personal guarantee or a lien against another property you own because the commercial lender will most likely want to be the ONLY lien holder (and when I say "want" I mean "require". Ask me how I know! Good luck :)

Christopher Suh · Answer

@Jeb Brilliant Are you going through the same broker as the seller? If the sellers gave you their #, I don't see a problem. I'm a broker here in Orange County and it happens from time to time with my clients. Although we generally do not like when buyers and sellers are in direct contact. But, if they offered a branch, you may as well grab it and see if they're willing. I would first find out the sellers motivation to sell the building and try creating a win win situation based on what they tell you. Good luck!

Jeb Brilliant · Answer

Hi @Christopher Suh I met with the owners and they are a very nice older couple. According to the selling broker they won't accept owner financing. Is it ultra rude and underhanded for me to call the sellers myself and ask them about owner financing? They did tell me to call them anytime if I have any questions and they said it right in front of the broker.

Christopher Suh · Answer

@Jeb Brilliant have you tried asking the seller if he'll carry back and do owner financing?

Christopher Suh · Answer

@Jeb Brilliant Good Luck! Keep us posted.

Jeb Brilliant · Answer

@Christopher Suh @Salvatore Lentini and @Matt Motil Thanks for your input guys. I'm still not 100% sure what to do but I know I need to act this week. Have a great week guys.

Salvatore Lentini · Answer

@Jeb Brilliant I bought an apartment building and was surprised to learn that most commercial lenders do not allow a 2nd lien...before or after purchase. Spend some money and time doing your due diligence. Most lenders require a Phase 1 Environmental which is pricey. Have a contractor you trust make sure there are no glaring problems. Unless you give this contractor work on a regular basis, I would pay them a consulting/advisory/hourly fee for their time. Talk with the township or at least research on their site and see what they require and allow as it may impact your plans for the building. Can you add to the existing building? When will it be reassessed? When looking at the financials (which property manager should provide) is the insurance coverage acceptable? If not, find out what acceptable coverage will cost (because that affects the financials) What kind of deferred maintenance is there? The financials can look a lot better when they're not including a roof that needs to be done in the next 2 years. (Sellers of multi units tend to fudge the numbers to make them look better than they are) I just read this over and it sounds pretty negative. It's not meant to be. I think multi units are great. Just make sure you know what you're getting into. The more digging you do the more prepared you'll be and a lot of times, the more digging you do, the more seriously the sellers and broker will take you and the more of a chance you'll have of negotiating a better price (because of uncovering something unsavory).

Matt Motil · Answer

Sounds like they'd love a nice little cash up front and the security a steady seller financed note would bring them into their retirement years. I'd call them and tell them how much you love their building and ask if they'd be open to the idea. Worst case you waste 10 minutes of your time and you get a no answer.

Jeb Brilliant · Answer

@Salvatore LentiniHow do you know? are you a lender or just experienced?

Jeb Brilliant · Answer

@Christopher Suh They want to sell because they lost to sons in the last few years and want out of the town where their boys were born and raised. Plus they're getting older and want to travel.