Creating A Waiting List And Then Getting Financing
Hi,
what do you think of this scenario:
2 beginners with little credit (3 years worth) would like to purchase a $1,000,000 piece of property. As it currently stands, the property is only 50% rented and needs $300,000 work. In lieu of this, we have created a waiting list and gotten it stocked with 8% more tenants (who have actually signed leases?) than the building will currently accept; these people will be on the list until the rehab is complete.
we now need financing, and the building is selling for 60% of its fully rented and rehabbed value. We currently make a combined $110,000 per year, each of us with $400/mo in student loans. one of us has a credit score of 580, the other a 640.
We would like to hold the property for under 5 years, and in order to make the cashflow we desire we must not be paying more than 7% interest on the loan.
So can we get financing or not? we are just entering the market, this will be our first deal. What would be the best move?
The above scenario is one which I may be in in the next few months, and have been wondering if I will be able to follow through when that time comes. What do you guys think?
-new guy-
Ifthe building is commercial and has the kind of vacancy you state and
If you were able to purchase it a a very reasonable price given the vacancy rate and
If you were able to secure wrtiten committments (preferably backed up by earnest money deposits) from long-term commercial tenants with decent credit history and
Ifas a result the subsequent cash-flow of the building were such that your mortgage payment were no more than 70-75% of the net after debt (including in the mortgage the cost of renovation) and
Ifyou were able to convince a lender of your ability to renovate the building in a timely and economically viable manner and
.If there is not some other factor which you have not told us about in this post
Then you could probably get financing for this project and even if you couldn't you could almost certainly flip the deal to some other developer. The profit from meeting the contingencies set forth above is probably more than the profit from operating the building for 4 or 5 years and then sellling it anyway.
That said that is a lot of IFs, and for that reason and because your last sentence implies that you don't actually have this building under contract, I am going to conclude this is not a real deal and am therefore moving it from the Deals in Progress forum to the Art of the Deal.
To all,
Sorry, I actually posted this in the wrong forum! it was supposed to go into "art of the deal".
And I forgot to mention that the property would be an apartment complex, and the waiting list tenants would be college students.
The waiting list would be facilitated through the university that these students attend. Students would be singing up for 1 year leases, and the waiting list will continue to supply students for the duration of ownership. It is in the works that missed rent would be tacked onto the students tuition bill.
Now what do you guys think?
Thanks for your replies,
-Newbie-
Hi, the deal is still in the works, actually. The plan is to get the rent payments covered as a part of tuition, (not just missed payments), like what is currently done with on campus housing. We will be providing housing off-campus, but are hoping to partner (only the operating entity!) with the school and certifying housing with the appropriate governing bodies; I can't go into much detail, but the plan is to create a vested interest in the housing project by the school.
Tuition would be paid up front, as you stated; and by default, a student must pay all tuition before he/she may register for the next semester's classes - so this means that a student either drops out of school or pays the rent. The percentage of students dropping out versus the percentage of those missing rent payments is much lower due to the sufficiently small student body at this particular private university, making this an attractive way to do business.
Mind you, this is actually still hypothetical; We are, at this point, only refining our plan to approach the university, but believe we will be successful.
-New Guy-
This "may" give you more ideas.
http://www.thecreativeinvestor.com/modules.php?name=News&file=article&articleid=579