I have the opportunity to buy 10 properties. Asking $866,000. The total SEV is $1,300,000. Total gross revenue is $103,000/yr. They are all houses except one 6plex. Is it possible to get a zero down commercial loan since the borrowing will be less than 80% of the total value? Any creative ideas?
How about a long term lease
You didn’t tell us too much about the needs of the seller. Sounds like someone tired of handling a bunch of properties and looking to retire. Usually these people own it free and clear.
On the other hand, it could be a bunch of up-side down properties in dire need of repair located in war zones, and the owner wants out.
If it is the former, an investor I know years back has great success in “leasing”, with an option to buy. It’s structured this way:
- Option money, tax free to the lessor.
- A Master long term lease, 30 years or greater as I recall, where you collect the rent, handle all the maintenance repairs, and you make a monthly payment to the lessor.
Benefits to the lessor:
- There’s no capital gains due immediately, and even the option money is tax free.
- On his death, due to stepped up basis, there’s little or nor estate tax due.
- Lessee handles all the operational headaches
Benefit for the lessee:
- You don’t have to go get a mortgage.
- You can mortgage the leasehold, which might even cover payments such as option money to the lessor.
- When the lessor dies, usually heirs want the money right away, and you can negotiate a advantageous sales price for yourself, buying out the lease. Heirs are usually motivated sellers.
- With escalating commercial rents, you benefit from the upside.
- On the other hand, if things go south, you can give it back to the lessor. The investor I know, who happened to be the lessor in one case, took the lease back (long story), and even made money doing so.
You have to explain the benefits. My dad had a commercial property years ago, and some investors proposed this to him. He asked me about it, and wanted to know what the difference between him collecting the rent and a lessee collecting the rent and taking a cut?? Now that was some years before I studied leasing and didn’t understand the tax aspects. No one offered him option money right away, which would have made a difference in his thinking.
All of this has to be explained right, structured right, because this arrangement is highly unusual for most unsophisticated sellers, such as my dad.