Financing

[Jordan Burke]

Alright everyone.  Here is my situation.  My wife and I are VERY interested in purchasing a multi-family at the end of the year/ or sooner if the right deal is there. We have a good savings doing practically nothing for us in the bank, but neither of us have strong full time jobs with enough w2 background for a bank loan (just working part time with school). I have read through a few discussions and such mentioning a few other options like Hard Money loans, seller financing, and of course private money from family and such but I'm not sure how to get the process going. What is my first step here?

[Tim Soto]

Hi @Jordan Burke     

It's great that you and your wife are eager to take action. Do you know the the number of units you both are interested in pursuing? In your situation, I would start by networking with multifamily property owner(s) in my area or area I want to invest in. I would attend my local Real Estate Investor Association/Club and network. Maybe there's a Multifamily property owner who I can network with. I would also research if there's a local Property Management Association or where the nearest one is. 

You say that you have some savings that, I'm thinking, you want to used toward a down payment, but not strong enough income to finance the balance. You're more likely going to want to look into seller financing or some other creative financing. Also, and more importantly, make sure you think about how much of that savings to keep in reserves for deferred maintenance or in case things don't go as planned. If you can't get financing, maybe you can partner with someone who can. 

Again, in your situation, I would start looking at and evaluating multifamily properties in the area I want to invest in and decide how many units would meet my investment tolerance because that'll also give me an indication how much of my own money I'll need to come in with, in the event I can obtain seller financing. 

I would contact a local Realtor to pull some properties for me. I suggest a Commercial Realtor with the designation CCIM (Certified Commercial Investment Manager), who can also give me guidance and may also know of a motivated seller, who'll consider seller financing. I would also go on LoopNet, CBRE, NAI, etc. to browse and pull multifamily listings that meet my criteria and look at the Offering Memorandums (OM), which contain detailed information of the properties. Commercial Realtors can be contacted through theses sites as well. Although all of these properties on these sites are offered at retail prices, I would study them so that I know my market, including price per unit, market rents, cap rates, NOIs, etc. 

Once I know I'm ready to make offers, I would ask my Realtor to pull old listing of multifamily properties and have him/her contact those Listing Agents to see if the seller would consider seller financing for a short period of time with a reasonable down payment. I would make sure to communicate that after some seasoning of the ownership, I would be able to refinance with a traditional lender as an owner, not as a buyer, making it possible to cash out the seller with reasonable terms.     

I would also meet with a local title/escrow company and start that business relationship. I would ask if they can pull a list of 5+ units in my area for my direct mail campaign and mail post cards or letters to these owners.  

Hopefully some of this info was helpful and not overwhelming. This is just based on my personal experience and opinion, and this is information I would have wanted to know when I was first starting out. Good luck!

Tim