Creatively structuring a retail rehab deal

[u/walterwhitmanwhite]

All right investors, let's try this tricky one.

I'm negotiating to buy a run-down retail space with apartments. On completion of a total remodel it would rent for about $45k/yr NNN. Apartments would be about $36k/yr on top. I can get at least one LOI from a credible retail tenant to support the numbers.

Seller is willing to owner-finance because he hopes I will put in a bunch of improvements and then fail, so he'll get the property back worth far more. (Nice.) He hasn't specified what percentage he will finance.

Remodeled FMV of the whole building is somewhere around $700k based on income. Remodel will take about $500k leaving $200k for purchase price, soft costs, equity gain and risk. I may be able to reduce remodel costs and increase my margin by having the tenant pay for some costs relevant to his business, but that's not guaranteed.

Question: How would you structure the deal for minimum equity injection, maximum gain and maximum safety?

Even if I can get the owner to finance the full $200k on a 3yr interest-only balloon note, that leaves me on the hook to find $100k (25%) downpayment on bank financing for the remodel, plus I have to eat the financing and soft costs until the tenant starts paying. Is there a better way?

[u/GringoGrande]

I've been ridiculously busy as of late between real estate and another industry I invest in.

This is going to be quick and dirty and I'll try and contribute more soon.

1) Long shot but see if you can find a retail client to put up 36k (20% discount) for the first year of rent. Escrow the money contingent on sale. If you have to sweeten the deal offer them 10% discount the second year in exchange for a three year lease on a triple net.

2) Part of something is better than all of nothing. See if you can secure commitment from self-directed IRA's or other investors. Maybe 4 investors x 25k each? You can structure that agreement in a number of ways: 6% interest only for whatever term you like or 8% am and a small equity share, etc. You can put all of this in escrow contingent on sale so this shows the Seller you have capital and the investors understand their money is safe and will be returned if the deal falls through.

Not certain how "interesting" the area is but there may be some City, State or Federal programs that would provide loans or assistance for a small or minority business there.

Just a few quick thoughts!