What Can Be Done?
I can't afford to make it to the somewhat costly bootcamp seminars about commercial and multi-family properties, but I'm hoping I can get good sound investment advice from this forum. These are a few questions I have about property analysis and creatively thinking about property aquistion. THis is not an actual deal. The properties are real though.
I was searching the net and came across a newly rehabbed 10 unit building for $250K with $100k equity. I did a generic calculation that I have used taking rent $475 x 10 = $4750
x 12
=$57000 GRI
GRI $57k
-22.8k (40% oper. exp plus vac)
=$34,200 NOI /.09
for a projected value of $380k.
Is what I've used a reasonable calculation?
If the equity truly is there, is there some way to effectively use it for an advantage
in financing the property?
If this question isn't too trivial I do have a couple more scenarios to present to the experienced investors out there. Thanks
Jerome:
Your rough numbers are pretty reasonable depending on the location of the property. Expenses as a % of gross rents vary widely depending on the location and age of the building and the property taxes. I have seen expenses that were as much as 60% of Adjusted Gross Income (after vacancy/delequency) and I have also seen apartments that were essentially NNN and the expenses were $0.
That said you appear to have a deal worth at least a further look. Does the seller provide his operating expenses? How do they compare with your "rule of thumb" calculation?
As to how to capitalize that value above the asking price (I'd have some trouble calling that "equity" although I know that the word is frequently used that way). There are a number of alternatives
1) find a lender that loans on Appraised Value rather than purchase price. Then you have to convince the appraiser that your numbers are good and that Cap rate is the most important determinate of value in this kind of property.
2) Find a partner. Let him buy the building and flip it to you (or vice versa) at something closer to it value. You borrow 70-80% of this new higher value conventionally and the partner takes back a second for the difference. Find another building, do it again only this time you flip to him. Your second mortgages cancel each other out.
3) Some variation of 2 using a "straw man" as the initial buyer and having the second simply disappear at some point.
Well here's the latest info on this property.
The seller is an agent that bought the property wholesale and has rehabbed it and current appraisal done in August comes in at $350K. They're offering the property at $250K but buyer must show financing approval with offer. The $100K difference will be credited to the buyer at closing and can be used for dnpymt and cc. IN essence a $0 money down if the bank does not require seasoned dnpymt.
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Another property along the same lines is a 20 unit asking $790K but seller will give a $150K rehab credit to buyer at closing. NO appraisal numbers........ but it is 100%occupied as of last week, so rehab may not be immediaitely needed. If a deal can be structured and accepted by the bank, sould/would the contract price be $640k and 20%dn and cc can be used from the rehab credit? providing appraisal suffices. Thanks for all advice.