Is There Anything Illegal About This Creative Deal Structure?
Dear Group,
I had a quick question. I was wondering if the following was possible:
Property:
62- Unit Rental Property in Manhattan.
Ask Price: 5 Million
My Strategy:
- Obtain a 90 to 120 day option on the property.
- Seek traditional financing for property.
After speaking with my mortgage broker, he said that a 25% downpayment would be required approx 1.2 Million
If during the option period, I sell 10 Apartments at $150,000 each, I have 1.5 Million - enough to cover down payment and possible closing costs.
Thus I would be left with:
52 Apartments @ 4 Million dollars, with a 1million dollar downpayment from the sale of 10 apartments.
This seems like a creative way to leverage a couple of dollars into a multi-million dollar deal. Can someone comment on whether or not this is a viable strategy? Is there anything illegal about this? Maybe some red flags that stick out?
-Angel
As long as your lender is OK with it and you are allowed to sell the units separatley. (it does not sound like it is possible though)
Your idea might work if the apartment building is subdivided so that individual apartment units can be sold separately and you could arrange for a simultaneous grand closing.
At a $5 M price for all 62 units, this would partition into
$ 4.19 M for 52 units and $ .81 M for the 10 units.
If you sold the 10 units you would have $1.5M but would owe the seller the $ .81 M. For a 25% down payment on the 52 units you need $1.05 M. This leaves you with $ .49 M left to pay the seller for his 10 units. Have the seller create a note for $ .32 M ( $.81 - .49) recorded behind the primary lender secured by the remaining 52 units.
If you can get the pandas in the cage on this one, you will certainly earn your success!
Angel
Because you said
62- Unit Rental Property in Manhattan.
It does not sound like units in the property can be sold separately as of now. Do you know for sure it can be done without converting them to condos?
Well said Nancy...
[addsig]
I actually started a co-op conversion here in CA about 20+ years ago. This was selected over a condo because the conversion rules were not under the domain of local governments. The corporations were set up and most of the legal work was done. I accepted a good offer for the complex before the conversion was completed.