1 year owner financing deal - is it enough time to refi?

Hi all,

Would like some input on a deal I have. I have a 106 pad park in really rough shape that the owner will only do a 1 year, interest only, owner financing deal on. The reason it needs to be owner financed is the park is completely mismanaged and they have scattered notecards for income / tenant records. Obviously a bank would laugh at me at this point. HML’s have even laughed at the deal. Its a 2.2million deal sitting at a 14% cap

So my question is, do you think 1 year would be enough time to get the books straight (on professional management software) do as much stabilization as possible in that year, and then do a long term refi with a bank?

Thanks!

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It depends. If your turn-around is installing water meters, raising the rents and kicking some bad apples and rehabbing some homes. Doable - if you have good banking relationships at the ready to finance the park.

If it involves filling 50 lots? Not reasonable at all.

I did a deal with a 2 year window from the seller, but it’s a few homes to in-fill (like 5) and rehab 2 homes. So it’s reasonable.

What are the details of your project?

If you’re buying it at a 14 cap, that suggests the income is coming in, it just isn’t being accounted for. If you trust the income stream that is being presented via bank deposits (or whatever they’re doing) then I’d probably go for it.
Maybe see if you can add an option for a second year of I/O in exchange for a fee at the end of year one or something.

Yeah I agree. I think just solely stabilizing the books and showing record as well as cleaning up and doing reno on approx. 15 units to make them livable and getting them rented out within a year is very doable and would then be financeable.

I purchased a park for cash in Little Rock a year ago. I put some feelers out to local lenders and they wanted at least two years ownership for a cash out refi based on the park’s value. At 12 months of ownership, they would only finance the equivalent of the purchase price and improvements we made. I did not shop hard for the cash out refi though. There were national lenders that I did not approach so who knows what is possible.

I would try to get an extra year on the note. Personally, I try to get five years before the balloon payment.

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Agreed, local banks will want 2 years and you’ll probably have to guarantee the loan. That’s your best bet, though. Other nationals in the space will not want to look at turn arounds until they’re turned around, literally. Approach your seller again, once things are underway - if he sees improvement, he may be on board for longer.

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I would do a 5yr,with a 3yr balloon payment. My experience is the seller will want to continue the payments as long as you’re on time.

There’s an old saying along the lines of “If you want 3 years to go by fast, sign a 3 year note”. My last few seller financed transactions were minimum 3 years in length, and it took at least 30 months to get the financials to the point where an appraisal would reflect the value you needed to get a bank loan.