About to close on my six unit. The inspection revealed about $ 20k of repairs. There are also some code violations amounting to less than $ 5k. This is a no money down deal with the seller holding a note for the down payment. Would you escrow the repairs from the loan proceeds or reduce the seller note. I prefer the latter approach but the former would preserve cash. Which would you pursue? The reduction of the seller note would occur with a seller credit to me at closing. --172.56.xx.xxx

Unless you need the money from escrow to pay for the repairs, I would take the credit and handle the repairs on my own. The credit is easier, cleaner way to handle it. Just one less thing to think about. That’s what I would do, but it depends on your finances. --107.2.xxx.xx

I know I’m not answering your question, but I have my own question on your financing approach. Are you saying that you have a primary loan thru a bank to purchase the property (say 70% LTV) and then the seller is holding a note in the second position for the remaining 30%? So you litterally have no out of pocket money? Is that possible? --174.199.x.xxx

Johnny, yes. It is possible. I'll be out of pocket only for closing costs. This is possible, and common, with commercial financing. These mortgages are generally held by local financial institutions and are not sold on the secondary market. Thus the restraints that apply to residential mortgages don't apply. This is one reason I like to play in this arena. --64.121.xxx.xxx

Thanks GKARL. I’ve just recently started exploring commercial loans, so I appreciate the info. To answer your initial question, I’d probably reduce the sellers note, and then take care of the $5k in code violations right away out of pocket. I’d get the place rented and generating cash flow, then I’d chip away at the other lesser issues with the monthly profit. --24.147.xx.xxx

Just a thought. --97.35.x.xxx

NE, near term repairs involve roof replacement, replacing two water heaters and some plumbing repairs. The last two items will need to be done right away. The roof can wait a year or two. My deal is pretty good as it stands as my proforma shows a 12% cap. My bank appraises at 9% so the spread is forced equity once I re-position the property. I'm buying the place with units vacant and with under market rent. The seller is distressed. Because of that, there's some deferred maintenance that I have to deal with. I'll need to wrangle a concession against the note, but I won't go crazy with it as I have a pretty good deal as it stands. Once I sort, this should cash flow well. --207.172.xx.xxx

So after I spent the $50,000 on repairs, proof of receipts and invoices, the sellers gave me back my down payment --they now had equity in the building if I defaulted. --47.156.xx.xx

That is interesting you have found a local lender to carry a balance sheet note with nothing down. I deal with banks that will carry notes on their books but their terms have been similar to cmbs loan terms. a few years ago those loans were more flexible. Not anymore. Perhaps bc of size of loan. --166.137.xxx.xx

Secondary financing is not an issue with my credit union. On top of that, I have excellent rates at 4.75% locked for seven years. Loan size on this one is north of $ 200K; not huge. This is a value play and they know that. --64.121.xxx.xxx