How would you work this partial BRRR?

[Jon Blackburn]

Hi Folks, I need some help please in how best to structure a deal (never done this before). Here are details:

• $50,000 (list price) tri-plex with two units occupied. Third (larger) unit needs $15k in rehab. ARV should be $80,000.
• $850 in monthly rent from two occupied units, will go up to $1,450 after.

Good cashflow, but I may struggle to get conventional lending if putting 25% down or negotiating a price below $50k. The seller seems open to getting creative (e.g. seller financing). He has roughly $31k left on the mortgage. So how would you structure this deal to pull off the steps?

Should I pay him $31k cash to get his mortgage paid off (and avoid risk of "due on sale" clause), and then have him seller finance the rest so I can use my remaining cash for rehab? Then refinance the property afterward?

Should I try to use hard lending for the rehab?

I don't have much more cash to throw at this, because I need to keep some in reserve. Would you go about it a different way?

[Joe Perez]

I'd like to see you spend as little out of pocket as possible. I wouldn't payoff the 1st, on the contrary i would take the property subject to the existing 1st. Have no fear of the due on sale clause. I have been doing subject to for over a decade never been called. You have to get a general authorization from the seller, authorizing you to speak to the lender. Then you take this authorization and contact the bank. Have the  account address  and phone number changed to your choosing and know you are the master of the account. If the rep asks who are you (which they rarely do) tell them you will now be responsible for making sure the payments are made timely. They get these requests all the time from family members, accountants, financial planners, etc. of the borrower. Make the payments on time and due on sale clause will never be an issue.

Try to get the seller to carry as much paper as possible, and hopefully you'll find yourself in a situation whereby you came in with little to no down and are only forking out most of the money for rehab.

I'm in Cali, don't see many units priced so low, curious what state your deal is in ?