How would you make this deal work?

[Cameron Ysidron]

Hey BP,

Recently I came across a great deal on a condo in Baton Rouge. A friend of mine that I graduated high school with is selling a condo that his family has held since 2006. It rents between 950-1100/mo and has only had one month of vacancies in the time he has owned it. He's looking to sell it for 72k, and I've walked through and it can be rented immediately. I'm one hundred percent ready to move on this deal, but I currently lack the funding required for a down payment. The seller is very willing to work with me in whatever way he can. 

First, we thought that maybe he could just provide concessions equal to the down payment and we would wrap it into the mortgage cost, but that's a no go for the underwriter. Next, we thought maybe he could just gift the cash to me and we could write a contract saying I agree to close. That's a no go either as apparently you cannot use gifted funds for a down payment on an investment property. The last idea I had was to purchase this property through a newly formed LLC, but I think that I would have to be the personal guarantor and the same rules would end up applying.

I'm running out of ideas here, y'all have any others?

Best,

Cameron

[Brandon Johnson]

@Cameron Ysidron my first thought is you are dealing with the wrong bank. The lending executives at the smallest local community banks are going to be able to be a lot more flexible and help you come up with a creative solution. I presume you are currently pursuing a 30 year fixed Fannie/Freddie backed loan. You will need an LLC, a commercial banker and the willingness to go for 20 year amortization with a balloon term and also be paying a little higher interest rates. If you can live with all that then there are ways to get this deal done. Just gotta get creative and figure out what the lender and seller are willing to put forward to get the deal done, but you probably need to start with a new lender.

A repair allowance is one possibility, so don't volunteer to the next lender that the place is rent ready.  Every place can use a little upgrade!  :)

Also, everything you mentioned in your 2nd paragraph is possible with a portfolio lender.  

As far as owner financing, once he sells you the property, he no longer owns it in a trust.  He can finance your "down payment" in the form of a 2nd mortgage as long as he and/or his trust partners are willing to accept a portion of their proceeds in the form of monthly payments after the sale.  Bank loans you 80%, seller loans you 20%, you keep all your cash and everyone wins!  That is how I bought my first two rental property deals from fellow investors.