Financing Options - 20 Unit MultiFam

[Andy Nichols]

I am touring a 20 unit apartment building this week that was just listed for sale. Decent asking price for a value add investment that is currently renting at 58% of market rates. Plan is to renovate unit by unit, shuffle tenants or find new, and have a 3 year hold.

I am a mid 20's recent college grad with a masters in real estate development, spent 2 years at CBRE, and now work for a commercial GC. I currently have no debt, but due to that am lacking assets/liquidity. I have a family member committing the down payment costs for an acquisition and construction loan. Operating agreement structure would be that I control all aspects of development, pay 5% on his money lent to me during 3 year hold and upon reversion, distribute 10% of proceeds back to him.

Is a bank going to loan on this set up? What requirements are they going to have? I was planning to collateralize the property due to lack of assets. Any other comments on this structure?

[Brian Briscoe]

We closed on a 32-unit not to far from where you're looking (Columbia, SC).  We went to a handful of local banks that are portfolio lenders (meaning they won't sell the loan on the secondary market).  We lined up suitable financing pretty quickly which included renovation funds.  We used CresCom bank - not sure if they operate outside of SC.  Regardless, like @Account Closed said, call a bunch of local banks... focus on the portfolio lenders, because they'll ahve more flexible terms.

If you call several banks and they all have net worth requirements, I'm sure there are plenty of people who'd put their balance sheet on the line if the numbers are right.  You'll probably have to give up a percentage of owership though.