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Updated over 13 years ago on . Most recent reply

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N Modi
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Financing question for rehab property

N Modi
Posted

I am looking to purchase rehab property in NJ. Property has five apartments, retail stores at ground level as well as separate small warehouse/office. Asking price range is around 500k.
Property requires rehab prior to renting out. There are no tenants in apartments or in retail. Question is about financing the deal. Considering there is no cash-flow being generated when purchasing the property as well as rehab work required, what is the best way to approach financing?
My credit is excellent but I wish to put no equity (also wish to finance rehab expense). I am not interested in going through hard-lending route. Does banks/credit union provide construction loan for rehabbing property or would they provide mortgage (purchase price + rehab expense) on entire property? What kind of terms would I expect for this type of loan? Also, if you can recommend bank/credit union dealing in this type of scenario, it would be appreciated.
Thanks

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Kevin Yeats
  • Lender
  • Fort Pierce, FL
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Kevin Yeats
  • Lender
  • Fort Pierce, FL
Replied

I seriously doubt that you will find funding for this IF you will not contribute any dollars to the deal.

Most commercial loans on operating properties require 35% contribution from the borrower or a partner.

This property will take some time before it generates any cash flow (rehab time + time to lease the units). Zero cash flow means more risk to the lender. More risk means much higher interest rate and/or lower LTV.

You will probably need someone to contribute at least half of the purchase price, all of the closing costs on the loan and a substantial amount of the rehab expenses (half?).

As Jon suggests, find a partner if you can't or won't contribute any dollars.

Good Luck

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