Advice on creative financing / mortgage refi within 2 - 3 years

[Marc M.]

Hello,

I'm looking at a group of 4 SFR's that have been on the market for over a year for $600K. The seller inherited these properties from a family member who passed away and he is motivated to cash out. We discussed the possibility of a land contract, but he doesn't want to hold a note for very long. There are also other cousins that have ownership interest and they really want to cash out too. The property is owned outright as it has been in the family for a long time. They would take $400K or less if I cashed them out right away.

So, I'm trying to figure out a way to put together a deal where everyone wins. My situation is that I am closing on my first mortgage this Monday for a property that rents 20% over the mortgage (on an 80-20LTV). I only make $45K/yr. I don't think I'll look very attractive to a bank right now :-( My guess is that a bank would want to see a year's worth of rental checks before they give me leniency on my debt-income ratio.

The 4 SFR's are renting way below market value. One thought I had is to put $30-50K into improvements and get all new tenants in the properties (there are no issues with leases or rent control) I can easily get the rents up to $4500 per month. My question is: If I do this while seller still owns the property... (call this a lease-to-own or a land contract situation), will a bank look at the rent rolls in considering financing the houses as an investment property? And if so, how much rental history will they want to see...one year, two years if I go for a conventional 30 yr. fixed mortgage?

When I crunch the numbers to do a hard-money-loan, it just doesn't add up considering the interest rate I would have to pay (and the fact that I'm in a high property tax area...$17K per year for all four houses.) The numbers only make sense when I can get a conventional 30 year mortgage with up to a 5% interest rate.

Any ideas of what I could do to finance this property? Could the seller get a mortgage to cash out family members? He would be more inclined to do a land contract if you buy out the other relative's interests.

I look forward to some expert advice!

Best,
Marc