Seller Financing a 12 Unit

[Keagan W Poole]

After asking 50+ investors in my area, one finally agreed to seller financing

Here it is:

12 Unit Complex in a good size city (population 65,000+). I'm only interested in long term multi-family rentals.

Owner said he would offer seller financing for those (2) properties (12 units total) for $250k with a good down payment. 

Taking into consideration that my credit is shot with under $500 in the bank, how could I go about help funding this. I was thinking a partnership, but unsure of where to look. I understand I'm young and may not be able to operate 12 units, but I'm willing to look into as many options as possible to make it work. Any help is appreciated!

[Chris Eaker]

@Keagan W Poole

I'd recommend looking up Michael Blank and reading everything he has written on multi-family. His website is helpful and so are his posts on this site. He has a free report about valuing apartments and how to put to together a package to present to potential investors. 

One major expense missing from your spreadsheet is property management. Even if you plan to self-manage, which I don't recommend based on your experience level, then you still need to account for it. Use 10% of gross monthly rent for that. Also, is this building separately metered? If so, I would move the utilities onto the tenant's shoulders as soon as possible.

So how much down payment is this seller wanting for this property? I see your estimates show two scenarios based on 10% and 5%. Is that right? You will probably not get such a low DP.

If you need 20%, that would be $50k. If you found an investor to fund the DP and you got the loan (if you found a bank to do that since you have no skin in the game), then the investor would want at least 80% of the equity, more likely 90%. If I were to fund it, then I'd want that much. That doesn't leave you with much left for yourself, but as Michael Blank recommends, it's better to give away that much equity on the first few deals so build experience. After you have proved yourself, then an investor would be willing to take less. 

You will also have closing costs, which for an apartment is not a small chunk of change.