16 unit purchase needs creative financing solution

[Eugene Mar]

I am looking at purchasing a 16 unit multi family building. The purchase price is $675,000. I was able to find financing for 65% LTV at a rate of around 5%. However, in order to make my deal work I need 75% LTV. I have gone thru four lenders and although at first they said they can do it they eventually come back with only 65% LTV.

One of the reasons is because I am a foreign national. I have substantial assets in Canada but these lenders are not very investor friendly.

I have been dealing with this seller for a long time and he knows I am serious. It is just a matter of the financing. The seller is also in a crunch because he wants to do a 1031 exchange. As much as I wanted the property I told the seller it can't be done. My contract expired over a month ago and he had it listed on the MLS. Today, I got a call from the seller's agent and he informed me the seller is willing to finance me 70% LTV at 5% for 25 years. That was quite a surprise.

Now that I know the seller is motivated and is willing to work with me what can I squeeze from him?

This is where I need some input from fellow investors. Ideally, I want to put as little down as possible.

Can I get the 65% LTV conventional loan and perhaps ask the seller for 35% seller financing? Is that asking too much? My cash flow will still be positive.

Or should I ask the seller for 15% and have him carry a 2nd mortgage? Will the lender frown upon this and not issue the loan?

Any kind of creative strategies here will be greatly appreciated.

[Bill Gulley]

Lenders are looking for, basically asking for 35% equity from you. They are also looking at your experience as well as the debt coverage.

If you have liquid assets you can bring them to the US and possibly use them as additional collateral to fund the deal. 

I'd take the seller up on that offer!!!

You might ask for 75% sounds like he won't go over 80%, but I don't know that, when a good offer is made asking for a lot more can tic the seller off. He might be trying to swap his note in the next purchase, too.

Getting 100% financing isn't always the best thing to do. What would your debt coverage ratio be? You're also banking on forced appreciation, not a sure thing. 

Look at my blog, TIC, TAC, TOE, that goes hand in hand with installment sales.

You can also divide principal up with one part being on an accelerated amortization so that you build equity quicker, this front end load brings the seller's LTV down quicker. I do partitioned notes to solve problems so long as the debt coverage is acceptable, 125% or better. Good luck :)