Beginner Interested in Small Apt. Complexes
I'm a beginner investor and I was wondering if someone could shine a little light on investing in apt. complexes. I've been researching initially buying smaller units 4-15 unit apartment complexes and later larger complexes. I have about 15k to invest, great credit, above average debt to income ratio. The current plan is to find a property that is selling below market value and needs minor repair, borrow around 60-75% LTV, get the seller to hold back a second of 25-35%, and use a little of my money and a percentage of that borrowed from the bank to create equity, bring it to market value, which will increase rents. What do you guys think I should be aware of pursuing this plan of action. What stumbling blocks will I possibly encounter?
How good of a deal are small-med. apts. complexes with sect. 8 tenants that needs minor repair? Are they as good as they look for a person whose eyes glimmer with optimism, or is most of the negativity about low income tenants and units true?
Is seller financing really a creative financing technique, or is it only available when there is something wrong with the property?
So many questions!! Any information will greatly be appreciated.
Thanks
I think that small complexe's are a good idea. I have always just put my sales$ into my primary residence as a way of having "cheap digs" I was proud of never having paid more than 400$ for a mortgage. I was dumb!
I recently figured out that taking my equity and putting it into any of 3 multi unit apts from 3 plex to 6 plex I would be able to service the remaining loan on that property and generate enough income to pay the note on a 120k home. These were on properties that were paying out 11% or better NOI.
I finally decided to take my equity in my house and turn it into a real cash generating machine. Not just wait for the 5-7% a year increase in property value. With this program I get both! and on two properties.
The last one I figured would have let my little 100k have 270k in real estate with no money out of my pocket each month! And... if the vacancy rate was less than expected.. cash positive 2k a year.
I think you are on the right track, wish I new more about section 8 that is something new to me. NOt sure if it exists in the west in Oregon Idaho and Utah.
Luck!
Randall
i live in phila., pa. where there is a lot of sect. 8 housing. i can tell you from experience as an electrician making repairs to these apts. that more often than not you will be constantly replacing. fixing and repairing on a continuous basis. the rents are usually a little higher than the average rent in the neighborhood. also you get your rent on the 1st of the month on time from the govt. the down side is you have to have your building meet a set of requirements such as. no lead paint, exhaust fan in bathrooms with no windows, proper security locks for entrances, fire codes, etc. and it will be inspected every year. you usually have to go to a 3 hour information meeting first before they will accept you as a sect.8 landlord.at this meeting they will tell you what they expect of you as a landlord.if a tenant needs a repair done, it must be started within 24 hours of 1st complaint. if not, sect 8 will hold your rent. also sect 8 does not reimburse damages done by tenants as they use to do. you are also responsible to get your own sect 8 tenant through your own advertising. it is difficult to get rid of a problem tenant. i have seen managers have to keep a tenant for months until the proper channels of eviction are finally set. by this time the tenant knows that they are going and they have all but destroyed the place. so proceed with caution with sect. 8.
Thanks guys, this helps out a lot.
I think after factoring in my lifestyle(job, time, experience, etc.) that mult-units is the way for me. Sect. 8 properties seem more reasonably price than none section 8. I guess everything comes at a price. I think I would like to get off to a good start before jumping into a high maintenance situation like section 8 according to friends and people at this forum.
So many questions...
First of all there's a WORLD of difference between a 4 plex and a 5 plex (when it comes to financing).
1-4 units = residential
5+ units = commercial.
Not that one is necessarily harder or easier (personally I find commercial easier for my situation) just that you have to finance them completly differently.
Seller financing is avalilable any time you negotiate it with the seller.
The best properties to buy are the ones that are mismanaged. You loose your money changing some tenants. If you're efficient you can do this relativly quickly.
Doing the deal you described above you should be able to get 100% CLTV financing....though not through a bank
As far as how good of a deal....that is a question that is extremly "deal specific". You get better cap's with bigger complexes.
In 5 days I'm closing my first deal on a 24 unit apartment complex that is 107% financed (80% LTV).
Sounds like we've got similar plans. It is possible and if you do it right it is profitable. Good luck.
Hibby,
can you expand on the details of the deal you are making.
WHere is the other 27% financing coming from and how was it approached?
Just wondering?
*****essed value: $1,227,000
80% LTV = $981K (off of *****essed value rather than purchase price)
Price = $900K
I'll write an articl and put it into TCI after I close. Many people have asked this question.
*****essed value: $1,227,000
80% LTV = $981K (off of *****essed value rather than purchase price)
Price = $900K
I'll write an articl and put it into TCI after I close. Many people have asked this question.
Sure....
80% LTV loan (off of the appraised value) on a property that was selling well below the appraised value. 80% of the value was 107% of the purchase price.
If you don't go through a bank to get 100% CLTV financing, then where would one go? Also, how much was the purchase price of the 24 unit? The reason I ask is that I'm having trouble finding a good deal. I've gone through real estate agents, loopnet, and newspaper ads and everything seems overpriced or out of my league. I'm going through a hard money lender and in order to come out winning on the project is to find a spectacular deal. Do you have any suggestions on what methods to use to find a good deal and what lenders to go to? Any advice is appreciated. Clara
Banks are expensive, have lots of red tape, and will go off of the lower of the purchase price or the appraisal.
Start by checking out the "lenders" section of TCI. Talk to mortgage brokers and other lenders. do searches for "apartment loans" "investor loans" etc. There are TONS of them out there.
I'll tip my hat to you if you can get 100% CLTV on a commercial deal through a bank. Not saying it CAN"T be done, just saying that I've never heard of it (at least in recent years). I hate banks for loans!
First off, can you spot a good deal? Can you look at a property and have a good idea of what the FMV is? What you would offer? What they'd probably accept? What your Maximum offer will be? Until you can see that (or figure it out) you won't know if you're looking at good deals or not.
Good deals are everywhere. You just have to sort through a lot of FMV stuff to get to them.
As far as lenders go, figure out what you want to buy. Figure out what you can bring to the table, and then find lenders that specialze in filling in what you need.
talk to a dozen and find out what info they'll need to know. Once you have a property under contract, send out an email to tons of lenders with an executive summary of the property. Let them get back to you. Ask for referals if they can't do the deal. It's tricky, but they're out there.
Hibby,
How did you find 107% financing for a 24 unit building? I'm dying to know!!
Gratefully,
Marlene
please do a lot of research on the other costs such as lawyers fees, taxes, income taxes, insurance ,the realestate gurus dont tell you how much Uncle Sam takes at the end of the year, cosider matinance costs, vacancy rate, no payments rates, calls in the middle of the night. Consider the bottom line how much it takes to keep the boat a float. Then you can tell yourself if its a good deal. Can you be a hard a$# to kick a low income single mother of two, with several things not going her way out on her butt because she didnt pay the rent! PLEASE DONT BE DISCOURAGED WITH THE NEGATIVITY BUT BE AWARE OF WHAT IT IS