How do I get a loan for a (mostly) vacant apartment building?

[Kyle Lewis]

I have a 12 unit apartment building under contract in Cleveland, OH. The building is vacant because the it has been neglected over the years. This presents a great opportunity for us to buy at a discount, rehab, and rent out at much higher rents. However, because 11 of the units are vacant, most banks are afraid to lend money for the project.

The purchase price is 170k and we estimate it needs 100k in rehab. My partner and I have great credit, income, and liquidity. The best option we've found at this point is hard money for 11 months (70% LTV, 2-3 points origination, and 10% interest) then refinance once the building is stabilized. We'd prefer to get into a loan with better terms. Anyone have any ideas?

Thank you!

[Joshua Fulenwider]

@Kyle Lewis the bridge financing is a good bet.  I would look at doing a construction loan and you have to find a bank that is willing to be creative with you.  Most people look at construction loans as being from the ground up.  However, you can get a construction loan on an existing building as well. 

This is set up as a draw line of credit with the first draw being used for the purchase.  You can then draw additional funds as you work on the project.  This has the benefit of you only paying interest (and it is set up as an interest only note) on the amount borrowed.  A lender will require good construction/rehab estimates prior to funding the deal though.

Also consider your time frame and work with your lender.  A single family home construction loan is typically for a year.  Get a lender that will match your timeline with the length of the loan.  On the back end sometimes you can get them to automatically roll into a permanent financing but more than likely you will have to refinance out of it.