Boarding House Financing

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From: Miakat .


OK all, I need some creative help with financing this deal.

I found an eight bedroom boarding house for sale. It also has a 1 bedroom flat. It is currently returning $720 per week. It goes to auction in June. After discussing it with the RE agent he thinks it might go for around the $300K mark. I am definitely interested in looking into this one. Only problem is finance. I currently only have about $10K equity, which means I'm a little short of the mark.

If I were to set up a company/trust structure is there any likelihood the bank will lend me 100% at a business interest rate.

I'm trying to see how I can do this deal and I think I need some help to think creatively about the finance.

Please help.

Mia

 

[michaelg]

Reply: 1
From: Michael G


Hi Mia,

I had a look at a boarding house once. Didn't go through with it, because of lack of time and finance wasn't easy for myself either.

But one thing I recommend you do, get the agent to ask the vendor for a income and expenses sheet. Ask for a copy of all the statements of the expenses, so you know exactly what your cashflow will be. This will help you put together a finance proposal to a lender.

Look in the newspapers for alternative financers, you may only need to finance the project for a short time, 1-2yrs to build up a track record which may enable you to refinance with a bank.

Talk to a broker but get the facts from the owner first on cashflow.

Michael

 

[Rolf Latham]

Reply: 2
From: Rolf Latham


Hi Mia

If it is a registered boarding house then your financing will have to be very creative on 10 k. 10 k as youi know will barely cover the costs.

This thing you have found looks like a very nice neutral to + cashflow deal, although I am always wary as to what agent feel what it may go for.

One way would be to find an equity partner at 30 % and go for commercial if a registered boarding house.

Ta

Rolf
Rolf

 

[WebBoard]

Reply: 3
From: Keith J


Talk to St George. They lend up to 80% on boarding houses. And they do the 4.90% 1yr fixed intro rate for them. All the other lenders I talked to would only do 50-70%. They may be flexible/creative depending on your equity.

 

[Peter Noake]

Reply: 4
From: Pierre .


Tread carefully on that house Mia. The costs of running the house will be high, (see 'The Castle' post and the net returns won't look as rosey on your deal as they do at first glance.

You will be able to make it work, but you'll need to put in a bit of effort.

You know where I am, come and talk and I'll show you all the numbers on our place.

Unfortunately I don't have too many financing answers at the moment, but I may think of some between now and the time you come and see me.

Talk soon,

 

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Reply: 4.1
From: Miakat .


Thanks Pierre and all,

I have since done a drive by of the property and it's not in a great location. Hence, not the greatest tenants. Such a shame because the property itself has huge potential. If it was in a nice area you could spruce it up and get some quality tenants paying quality $$.

Ah well. Live and learn. Think I'll go along to the auction and have a sticky beak anyway to see what it goes for. I'd never pay $300K for it knowing that Pierre got such a bargain for his in a better area.

Mia