8 unit building, looking for financing/deal structuring advice

[Paul Gwilliam]

I'm looking at a property right now that is multi family and has a significant value add potential. However, the current numbers show it's a dog.

I'm fairly confident I can get the seller to let me manage it for a few months and be flexible with the purchase situation. If I can manage it for a few months, I can fill the vacancies, and maybe increase rent a bit, or turn over a couple units at increased rents. I just need to buy some time.

My question is about financing it. Is there a way with multi family financing to get a carryback from a seller to eliminate my need for a down payment? OR if I got short term financing for 6 months to increase income/decrease expenses and get a better value which makes a refinance possible. I wouldn't need a down payment if the purchase price is less than the 75% LTV because it's a refinance. How can I make this work? What is your experience?

Here are the numbers.

List Price 250k  (Not paying close to that)

Current NOI 3,000

Potential NOI after some management changes 20,000

8 units current rent 400 (3 vacant)

market rent 450-550

Empty basement with space for 2 or 3 more units after much construction.

[Stephanie P.]

@Paul Gwilliam

I wouldn't "manage the property for a few months and be flexible with the purchase situation" without a firm lease option agreement in place.  You probably already know that.

Rather, I would ask the seller to sell you the property and carry the note until you can work out suitable financing.  At that time, it's a refinance and no down payment is necessary if you find a lender that doesn't require seasoning on title and will go off the appraised value.

The increase in rents etc... is going to improve the value of the property using the income approach allowing you to get to 70 or 75% where lenders like to be for this type of transaction.  This scenario I'm describing is not a bank loan but a portfolio loan and the rates and fees, while not hard money, will not be 4% with no points so be prepared.

Hope  that helps.

Stephanie