I've been doing tons of research but I didn't find anything similar to our problem.
A
little bit of background. My mother-in-law and aunt own and live on
this property. We listed it in 2020 and we got an offer for $2M but the
family backed out because of covid so we assume it's worth something
around that. The existing building is more than 100 years old and
consists of 5 units where 3 of which are rented for $5,000 altogether
and the family uses the other two. There's no debt on the property.
The idea is to leverage the equity on the house to tear down the
existing and build a 6-8 unit family which would bring the house value
to at least $5,0M (similar apartments are being rented for ~$3,800).
We want to keep the property for cash flow and use the equity that
was created and refi to fund more deals, generate more income, and so
forth.
The problem is we have very little cash and basically need to finance 100% of this deal.
This project will roughly cost between $1,5M to $2M depending on what we do (which would be ~30% ABV).
Also, we would need some money to keep their expenses throughout the entire project which could take at least 16 months.
I have run multiple scenarios and even with the most conservative assumptions, it shows that the project is feasible.
The property owner's credit is average, with no other income other than this rent and no other assets outside of this property.
I've thought of structuring this using two loans. The first one
(ideally around $300k) is to cover pre-construction soft costs, have
some liquidity and keep the family's living expenses and the second one
would be used to fund the project itself.
We would most likely need a loan with deferred payments or use the money from the first loan to pay interest only on both loans.
So our goal right now is to figure out whether this is even possible with given circumstances.
Are there any other options for something like this?
