Idea for seller financing via sort-term partnership

[Kevin Likens]

Hello - this is my first post!

I’ve been living (and renting) in San Francisco for the past 25 years. I’m currently in a 4-unit multi-family building, and I was recently notified by the property manager that the landlord is planning to sell the building.

I only got turned on to REI a few months ago - I'm currently in the "saving money" phase (à la: Set for Life). My first goal is for a multi-family building that I can house-hack and live-in rehab. While I wasn't feeling ready to actively pursue that goal for a while longer, this building fits the bill - deferred maintenance is so prevalent that there is ample opportunity for adding value.

I’ve been crunching numbers to determine a counteroffer to the owner’s asking price. I don’t have the resources to buy even at what I’ve calculated to be a reasonable price, so I’m brainstorming creative financing solutions. (Some background: I’ve lived here for 10 years; the owner and I have a cordial relationship. My understanding is he doesn’t necessarily want to sell, but he needs money.)

I’m thinking about asking the owner (if and after we agree on a price) if he would be willing to sell me half of the building now (so he can have some cash), and half in a few years after I’ve added enough value and can refinance (guessing 3-5 years) to help me get off the ground. I’m assuming that would be a partnership situation with him, right?

Questions I have about financial technical aspects:

- One option I see is I get a loan for the 50% amount and give that money to him. I don’t know yet if he has a loan or not. If he does, it would mean we would both have a loan. Can one building (that’s not a condo) have multiple owners with multiple loans?

- If he currently has a loan, could I be added to that mortgage and take over a commensurate portion of it… or would it have to be a new loan altogether with both of us on it?

- Thinking about FHA loans, I understand there is a "self sustainability" rule for 4-unit buildings. If I get a loan for half the agreed cost of the building, according to my calculations (counting the full income) I could meet the requirement… or would FHA consider the income as split between owners, and therefore they would only count half of it?

Any other considerations?

Thank you for your time and wisdom!

[Jonathan Wooten]

@Kevin Likens Yes there are a couple of options you can pursue in my opinion: 

1. if there is still a mortgage on the property you can take over the building subject to the existing mortgage and then you would be responsible for paying the monthly payments but the mortgage would stay in the current owner's name so you would not have to qualify for a new loan.

2. if there is a mortgage on the property + equity then you can again take over the property subject to the existing mortgage and then seller finance the equity with the current owner. The seller financing part can be as flexible as you both want it to be - just have to find a deal that works for the both of you. 

3. you could get a hard money loan based on the deal you could work out which usually go for 12 months and then once you finalize the renovation, stabilize the property with market rents, you can refinance out of your hard money loan into a 30 yr fixed mortgage - that's called the BRRRR strategy if you want to research on it a little more.