Rental Property Financing challenge - Posted by Mehdi Assadi

Posted by Mehdi Assadi on December 05, 2003 at 11:59:11:


I have a real doozy of a challenge here. I live in a large apartment complex (1700 units) which is a co-op. It is ideally situated and in the past 18 months of living here, I have carefully studied rental rates and the vacancy rate. I can say with 100% confidence that efficiencies in this complex rent at $800-1000 depending on whether they’re furnished or not. These rates are lower than other rates in the vicinity. The vacancy rate is very low and I have spoken with many property owners who are vacant less than 1 week per year. There is a high turnover because the property is near three major universities, two gargantuan employers, and international financial/political organizations which create a constant stream of new renters.

The challenge is getting financing for a co-op. Local banks here refuse to finance purchases in co-ops. There are two institutions which will, but they require 20% down and are asking 8.5% on a 30 year fixed. The maintenance fees on these units is low ($200), so even with these awful financing options, I can still have positive cash flow of $30-$230/month.

I started looking at other banks/lenders who were more familiar with co-op financing and I am seeing some good rates out there including 3/1 ARMS and cash flow arms under 5%. But, because these units are so readily cash flow positive, the complex is only 15% owner occupied which has scared away most lenders (Fannie Mae requires 51% owner occupancy on co-ops to purchase their mortgages).

I am pushing the limits on creative thinking and coming up empty. I would like to hear any ideas you might have. The units sell for $85k - $95k right now. I would like to hear ideas on how to finance the purchase of multiple units at one time, or how to find private sources of funding. Anything you might offer would be great. As for me, I can document income of $130k+, and my ratios right now are 22% with the mortgage on my other rental property (single family home). My credit scores are just under 700. I appreciate any help. Thanks.