When you are looking for sources of funding for your multifamily deal, you will save a lot of time and energy by targeting predisposed sources of funding. A great example of a predisposed source is the seller of the very property that you want to buy. In addition, you have four ways to structure a deal with a seller. These four ways are through a second mortgage, the seller owns the property free and clear, a deferred down payment or a lease option.
Another thing you need to keep in mind along with the four ways to structure your multifamily deal with a seller is that there are two types of sellers. You have previous sellers that you can work with as well as sellers from marketing.
Previous sellers are sellers that you approach as you complete the real estate deal. The seller is walking away with cash in hand. Here you have a private money source right in front of you. You need to take advantage of that opportunity to ask them if they have plans for the money and if they would be interested in doing a multifamily property deal with you.
Sellers from marketing are the sellers with whom you have tried to come to terms with on a deal and you are unable to for that particular real estate deal. Do not discount them when another deal comes into play. Since you are aware of what they expect or look for in a deal and what they do not like, then you can approach them with another real estate deal that matches their criteria.
Probably the most well know of the four options is the second mortgage. In this scenario, you ask the seller to carry back the second mortgage. This, in turn, lowers the amount you have to find from other money source.
The second option is when the seller owns the property free and clear. You should be able to at least get the seller to carry something back, either as a first or second mortgage. You need to be sure and determine what their underlining debt structure is. Find out what kind of financing is on the multifamily property.
The deferred down payment is the third possibility in structuring your multifamily deal with the seller. The idyllic situation is to buy yourself enough time so you can make improvements to the multifamily property and then refinance your way out of it. You will need at least 12 months to refinance. You can do it earlier than that, however.
The fourth and final possibility to structuring your deal with the seller is through lease options. This option is often overlooked. You can buy properties under a lease option as an investor. You sign the lease for the multifamily property as the master tenant. You then make payments to the owner. Then, to cover the cost of your lease payments, you sublet to tenants. Their rental payments cover your lease payments.
Working with the seller allows you great flexibility in the various options that are available to you. Not only do you have the ability to target previous sellers but you can work with sellers that are still searching for the right deal. The four potential ways to structure a multifamily deal with sellers make sellers a great private money source.