DO I GET IT?
Here's my take on how I could purchase a large apartment complex...
Locate a distressed property.
Complete due dilligence.
Finance @80% through the bank and 20+% from the owner.
Use extra $ for repairs and getting a +CF.
This sounds too easy and very risky to me. Are there certain techniqes that you are all using to improve and guarentee the future CF?
What I'm asking is that I read post after post claiming that there's a potential CF in the stated property...how do you try to minimize the losses? How do you have a guarenteed out?
It just seems to me that a lot of people on here are rolling the dice...are you really finding deals out there that
1) Pay for the loan(s) on the creative purchases (after rehab and work to get the building make a +CF)?
2) Make any + CF after the BE point?
I understand this is all skeptical, but I have a hard time believing there are that many "dumb, busy, tired" owners who can't see how to profit off of their apartment complexes?
Thanks for your time,
Wes Laney
Wes,
There are not that many "dumb,busy,tired" owners out there, but there are some.
You shouldn't buy a property if it doesn't cashflow. If it does cashflow, your risk is much lower. And yes, there are lots of buildings that cashflow or potentially will once fixed.
The part of your post that is incorrect is the 80% bank financing and 20% seller financing. I have yet to see a lender who will loan over 95% CLTV(bank mortgage combined with seller mortgage). If you have, then great for you.
-AE
If you are getting a commercial loan from an institutional lender, it has been my experience that the maximum loan you can get can not take your Debt Coverage Ratio below 1.3.
If a 1.3 debt coverage ratio means that your maximum loan amount is only 65% of your purchase price, you will have to come up with the balance somewhere else. I have also run into a maximum limit on seller financed participation of only 10%.
I have 33 units that i financed with $3500.00 total out of pocket. So the answer is yes it can be done. Is there risk? Of course. I was coming in to work this morning. Didn't want to walk or wake the wife to bring me. Had left the car at work because i needed to pick up a Motor home to have some work done. I took one of the kids scooter and rode it down the hill. Hit a pothole and flipped ass over teakettle. Picture a 37 year old man flipping off a scooter. A little road rash but ok, thanks for your concern. I have financed 20% owner, 80% bank, have traded resort property, have used a cc for down, have used 100% owner financing. My secret is to look for properties at about 15k to 25k per unit. With rental rates from 300 to 450 per month, you have an automatic winner. Plus the more you do, the more cashflow you generate, the less risk you have.
Good Luck,
Shawn(OH)
loanwizard--
You say you look for property... but how and where?
Do you send letters or call apartment owners? Use MLS? Search tax records?
I'm confused becuase it is very hard to find and apartment with numbers like that because they go so fast. If you find motivated sellers before they put the copmplex on teh market, how do you know the numbers are right?
I am hard pressed to find multi-units in So. Cal or Calif for that matter that has monthly rates of 300, 400, or even 500/mo. CA is sooo over priced in RE that these deals are almost non-existant, if I am missing or not looking hard enough please let me know. Iam very teachable.
Thanks
RAL