Seller-Financed 0% Down Commercial MF

[Zane Lyons]

Hey folks,

Have an opportunity for a very exciting deal but would some love some input from the creative financing crowd to help optimize it/make it work.

Long story short, I have an opportunity to purchase a 32-unit complex with 0% down. The seller has a specified amount of cash flow he wants per month, and as far as I can tell everything else is very negotiable.

The hurdle here is that the monthly cash-flow he wants is high. It's serviceable, but it is cutting it close. He is looking for around $40,000/month. I think this could be adjusted (maybe somewhere between $35k-40k), but this monthly number is his main ask. I am sure this deal can be made attractive if the other terms are in my favor. The other hurdle is that the property is vacant will require significant rehab (mechanicals & cosmetics – structure is fine).

My strategy right now is to get the property as cheaply as possible, defer payments for 6-12+ months in order to get renovations well under way and units starting to rent, and then make sure we can hit his number for a 5-10 year period of seller financing, after which we would own the property for well under market value. In order to hit the seller's monthly payment, the units will need to be renovated to A-class. This area can support A-class buildings (downtown area with mix of A and B class) and the apartments are significantly larger than anything else on the market, so I think this is feasible.

Example Numbers:

PP: $4,200,000
0% down payment, principal only (0% interest), 10-year term, gets us to $35,000/m principal payment

Renovation: $2,800,000 (average of two quotes - one all encompassing, another comprised of subcontractors w/ GC fee)

Income: ~$54,000/m with competitive $/sqft

Expenses: 

$4,500/m in taxes & insurance (tax quoted from county assessor, insurance from broker) +

$3,050/m maintenance, $1550/m CapEx, 9% PM fee (quoted) = ~$14,100/m expenses

Assuming utilities will be paid for by tenants (standard in my market)

This gets us in at ~$150/unit/m cash flow, which is definitely decent to me. And at a 3-4% cap rate, gets us a value of $12-16mm! 

I would still need to raise the ~$3mm for renovations, which sounds like quite a challenge, but I feel like the deal can be strong enough that it would be doable.

Obviously more of this will need to be teased out during a true due diligence period, and there is a good chance I need to bump the purchase price to hit his $40k/m, but I wanted to post here to see if I am missing anything major.

Any creative financing folks willing to share input on a deal like this? Thanks a lot in advance