First Deal- Analysis Paralysis and Unsure If Good Deal

[Jonathan Abrado]

Hi BP Community,

Newbie here! 

I currently have an off market deal under contract in Stamford, CT from a family friend. Originally was trying to do a seller finance deal and they were open to it, but things got a little complicated. 

Background:

Legal 3 Family home with long term tenants and has other streams of income attached to the property off the books, so it cash flows very nicely. Market value is over $800k and they have agreed to sell to me for $780k. The current owner lives in one unit, and rents out the two other units, WELL under market. The issue we are having is the property doesn't "legally" cash flow enough to qualify for DSCR, and, for seller finance, they have unrealistic terms. The owner wants to sell the house, but also be allowed to live there (possibly for free, maybe pay rent, not sure yet) until they close on their next property. They want a big down payment as well, basically enough to alleviate a financial issue, and enough for a downpayment on the next purchase. I've explained its very rare and almost impossible to name your price AND your terms.

So, because I don't qualify for DSCR at the moment, I can possibly get a bridge loan to acquire the property, charge them rent until she finds a place, bring the other units up to market rents, and then refi out within 8-12 months. I was also thinking for selling financing by paying off their financial issue as part of the down payment now, throw a little extra on top as cushion, call it $100k, and then monthly payments towards the purchase price, that will also go towards her downpayment, and then another lump sum 5-6 months later to go towards the rest of her down payment, since the likelihood of her finding a place and closing in 30-60 days is low.

Does anyone else have any other creative ideas on how to either present seller financing to them and not have to find a lender, or a solution outside of conventional and DSCR to acquire the property?

Thank you!

-Jon

[KC Pake]

Quote from @Jonathan Abrado:

Hi BP Community,

Newbie here! 

I currently have an off market deal under contract in Stamford, CT from a family friend. Originally was trying to do a seller finance deal and they were open to it, but things got a little complicated. 

Background:

Legal 3 Family home with long term tenants and has other streams of income attached to the property off the books, so it cash flows very nicely. Market value is over $800k and they have agreed to sell to me for $780k. The current owner lives in one unit, and rents out the two other units, WELL under market. The issue we are having is the property doesn't "legally" cash flow enough to qualify for DSCR, and, for seller finance, they have unrealistic terms. The owner wants to sell the house, but also be allowed to live there (possibly for free, maybe pay rent, not sure yet) until they close on their next property. They want a big down payment as well, basically enough to alleviate a financial issue, and enough for a downpayment on the next purchase. I've explained its very rare and almost impossible to name your price AND your terms.

So, because I don't qualify for DSCR at the moment, I can possibly get a bridge loan to acquire the property, charge them rent until she finds a place, bring the other units up to market rents, and then refi out within 8-12 months. I was also thinking for selling financing by paying off their financial issue as part of the down payment now, throw a little extra on top as cushion, call it $100k, and then monthly payments towards the purchase price, that will also go towards her downpayment, and then another lump sum 5-6 months later to go towards the rest of her down payment, since the likelihood of her finding a place and closing in 30-60 days is low.

Does anyone else have any other creative ideas on how to either present seller financing to them and not have to find a lender, or a solution outside of conventional and DSCR to acquire the property?

Thank you!

-Jon

Hello Jon,

Welcome to the BP Community! It sounds like you've got an interesting situation with your off-market deal in Stamford. It's great that you have the deal under contract, especially one that appears to have solid income potential. However, the complications you're facing are not uncommon in real estate transactions, particularly when dealing with seller financing and properties that don't meet traditional lending criteria "DSCR."

Here are a few thoughts and potential solutions:

Seller Financing Structure: Since the seller wants a significant down payment and the right to live in one of the units, you might want to propose a leaseback agreement as part of the seller financing. This would allow them to continue living in the unit for a specified period while paying rent to you. This rent could be structured as part of their installment payments for the sale of the property.  Not sure I would allow them to live at the property for free, as it would be a disincentive for a near-term move.

Bridge Loan Option: As you mentioned, a bridge loan could be a viable option to acquire the property quickly. You can use the loan to cover the purchase price and then work on adjusting the rent to market rates to increase cash flow. Once the property's financials are more stable, you could refinance with a more traditional mortgage product.

Partnership or Joint Venture: If financing is a challenge, consider bringing in a partner or forming a joint venture. This partner could provide the necessary capital for the down payment and share in the ownership and profits. It's a way to spread the risk and also meet the seller's financial needs.

Creative Financing Methods: Other creative financing methods, such as a wrap-around mortgage, might be worth exploring. This involves you taking on the existing mortgage and creating a new larger one that wraps around the existing debt.

Negotiation on Seller's Terms: It's important to negotiate the terms with the seller. While it's rare to get both the price and terms you want, there might be room for compromise. Maybe the seller would be willing to pay a reduced rent or agree to a shorter leaseback period.

Best of luck with your investment!