5 Four Unit Apartment Buildings
Asking $125,000 for each building or $625,000 for all five. Taxes on each building are $879.72
Of the 20 2 bdrm/1bath units, 10 are vacant. Rent on the occupied range from $330 to $400.
As you might imagine the buildings are somewhat distressed. A little cosmetic work will get the vacant 10 units rented. The area is a low income area. An identical set of apartment buildings have been rehabed and renovated. So, the area town is coming up.
A mortgage was taken out on each building for $60,000 in 2001. And the sellers want all cash deal. The sellers live out of town, and they have a poor property manager. They just want out of the whole thing.
Now, my question. How can I creatively finance the property without taking out a mortgage?
Thanks for you help in advance.
OK, so one goal is not to take out a mortgage.
But what is your main goal here? Buy, fix up, and operate this complex? Or Buy, fix up, and sell it for a profit?
Your goal will lead to the answer to your mortgage question.
-Don M
My goal is buy, rehab and operate. I am looking at it as an long term investment property.
[addsig]
To my way of thinking, if you were going to flip it, a partner would have been a good solution. Since you are going to keep it, I would think you should talk to some hard money lenders to see if they agree with your assessment of the deal (and therefore will lend you the money).
-Don M
For a commercial deal, what is the highest loan to purchase price that people have been able to get with hard money lenders?[ Edited by Marcher on Date 12/04/2004 ]
I'm a newbie but i think it's safe for me to say that you should shop around and try to find a lender that best fits what your needs are. This might help on where to start with hardmoney lenders: http://comm.thecreativeinvestor.com/LenderFinder-index.html
I gather from your post that you don;t have $125k or so fro down payments, plus rehab costs available to get into this deal.
If you can;t get the DP/rehab money up front, you obviously will have trouble making this happen.
A construction loan might be your answer (from a local bank) as that would be based on the after rehab value; or another idea I have is to go visit the seller. sit down wiht them, let them know what you have to offer. Perhaps they'd be willing to give you 3-4 months to work at the property to help turn it around so that you can get it leased out and improved. I'd be willing to bet these used to be cash cows for the seller and they clearly remember those days - talk with them about those times and let them know you are the answer to those days coming back.
If you can get it cashflowing; you will both be in a much better postition to get a bank loan will little down (you can point to your 3-4 months of work as the DP). If you still have trouble with the banks, perhaps the seller would then be willing to carry you for a year on a wrap land contract then you could refi more easily than buy.
A lot of this is dependent on the balue/rents of the rehabbed units in the area. If you can get detailed info on those (appraisal, rental rates, etc) you'll have a much easier time chasing money.
With the limited numbers that were given, my opinion is that the property is not really that good of a deal to begin with. I am not trying to bring you down, but I think I would want someone to let me know.
At $400 a unit, fully rented, which it is not, you would have $1600 rent, subtract taxes, insurance, and plenty of maintenance(low income properties require lots of maint and tenant turnover) and you end up with about $1100 or $1200. For a lower income area, and not in great condition, I would say that is about a 10 cap. making the property worth about 110k to 120k. Do you want to buy property at or real close to market value??
Oh, but you want to do rehab also?? I would think that would make the property worth, in its present condition, a little less.
If you could get the property for about 80k or 90k per bldg with hard money for the purchase and rehab, that would be a deal. You could do the deal with no money out of pocket.
First of all, I want to let everyone know I appreciate your comments. You are straight forward and to the point.
Now, I have a little more info. for you.
Income
Rental income (10 units, occupied) $45,060
projected (10 units @ $400/mo) $48,000
Gross Income $93,060
Vacancy rate @ 10% ($9,306)
Effective Gross Income $83,754
Expenses
Accounting/legal $600
Advertising $600
Insurance ($105/unit) $2,100
Property Management $0
Real estate Taxes $4,478
Lawn/Snow service $2,700 Repairs & Maintenance ($45/mo) $10,800
Utilities $7,200
Misc. $3,000
Total Expenses ($31,478)
Net Operating Income $52,276
I will be managing the property.
I am looking into some hard money lenders.
I can come up with about 30K of my own $. But I would like to use as little a possible.
A identical five buildings, are renting for $525/mo. These buildings have been rehabbed.
Again, thanks for your input.
Why would you want to get a hard money loan in lieu of more traditional means of financing? A lien on the property is still a lien, and with the hard money loan, you'd be making huge interest payments each month, and in a year, the whole balance is due. What you can so is get a rehab loan, which is typically higher in LTV than just a straight out purchase. If you just do a straight out purchase, if your credit is good (meaning 680 or higher) you can get 95% LTV if you can convince the seller to take a 20% second. They can just sell the note right away and get the cash. Just an idea.
Sincerely,
Amy Cheng
Real Estate Investment Analyst & Consultant
Well, the truth is my credit is about 585. Would getting a rehab loan be any easier than an conventional? I really don't like the idea of the higher interest rate on the hard money. And seller won't take any back.
Likuid Kapital, What kind of terms for a 7 unit in PA? 25 or 30 year am.? Any no interest? Low doc. no doc, stated inc.? I have 20% to put down, owner will 2nd the balance. credit score in mid 600 range. Price 25k/unit. Great cash flow. Any thoughts? thanks
I e-mailed my banker inquiring as to what type of loan programs they had for buying or rehabbing real estate. He in return called me the next day wanting to take me out to lunch next week. He also mentioned a commercial lender would be accompanying us to discuss options.
What kind of info. will these two want to hear in reference to investing in multi-family and low rise garden apartments?
The commercial lender is going to be looking at a couple of factors - which from your description will be red flags at the moment.
1. Occupancy rate - Most commercial lenders want an occupancy rate of 75%
2. Debt Service Coverage Ratio - Most lenders will want you to have a minimum DSCR of 1.25 - 25% positive income after debts are paid.
3. Management/Maintenance - What is the existing and proposed management plan for day to day operations of the facility and increasing the occupancy rate, along with consideration for what is your maintenance plan. With 20 units there will be an expectation that you will not be maintaining the property yourself.
Interim financing at a higher interest rate while you rehab the property and fill it could be an option that will be discussed.
Good luck
I know how to creatively finance this purchase. If you are able and willing to property manage it, I would be willing to partner with you on this and several other properties. Working together, we can manage more properties diversifying our portfolio and making more money with less effort. I am an expert - doing only this professionally for 6 years. I own my own construction company as well to perform such services. Call me if you are interested.
Van
949-916-5742