New To Commercial RE, Looking For Small Appt/mobile Park
Looking to break into the commercial side of of real estate. I am very interested in purchasing via seller finance a small appt complex (20-50 units), rv park, or commercial multi-family units.
do you know what market you want to invest in?
I am open to all markets. I care mostly about the cap rate and potential/actual cash flow.
Syracuse?
Syracuse is good as long as I find a productive property.
Low ball them! Or find another location. They say find another pond if this one is all fished out.....
The banks will not be happy with 60% occupancy....
RGlover,
Question for you......I have only purchased one commercial property so my experience is limited however I was able to actually speak to the underwriter herself during my purchase. I was told by the underwriters at Greystone that a commercial property when not fully occupied is not worth full price in the banks eyes. She more or less insinuated that the price should be lower when occupancy is low. Especially when it is under 75%. Cant that be used as a bargaining tool without upsetting the seller? I understand you dont want to be insulted but if there arent legitimate reasons for 60% you cant offer full price......I guess what I am trying to say is the numbers speak for themselves and the seller has to realize the financing issues buyers will have. Or am I just too trusting of what the underwriter told me?
CAP rate clarification,
doesitmatter
"True, cap rates are generally calculated based on the current rent roll, annualized, minus a vacancy factor and realistic expenses. " BUYER
rglover
"Cap rate quoted for 100% occupancy" SELLER
I guess it depends if you are the BUYER or SELLER. I would certainly push the number which is in my best interest.
cornerstonesvs,
You bring up some good points. That is actually how we came to our 1st offering price is by talking with lenders and determining a loan that will work during stabilization. They quoted us an adjustable 1-2% over prime (9-11%) for minimum 18 months 70% LTV, with the option to convert to perm financing after that. That is a good option and they were aggressive to pursue it. But our fears are that the total price would put us negative on cashflow for 2 years or more.
2nd option being low Conventional offer of 1.35 with 120 days escrow for stabilization, secure with competitive financing, we bring our own money to close and for improvements.
Our third option would be much like the second but with a 10-15% carryback no or low interest, balloon in 3-5 years. That would enable us to come to the table with less, but still requires us to pay the seller in the end. He may take a carry with 1.5 asking price.
What if we are near the top of the market, we have little to fall back on. It could work, but it is still a marginal deal in our eyes. On the upside, rents are rising and may go up 5% per year for 3-4 more years and then we hold for total of 7-10 years and end up with $1mil in equity and great cashflow. suggestions?
Thanks again for your input, you should post more, we can all use as much input as we can get : )
talking to an securities atty. A PPM is not for the faint of heart and the penalties if you get busted.
are you going to do this in an entity or just TIC?
No legal entity. It will be held under umbrella insurance policy.
Can you supply an example contract?
Thanks,
Jon
I have done LLCs. For this I would go to an atty to have the 1st one drafted as there are alot of issues to deal with such as:
buy sell
disolution
death
divorce
additional capital
etc.
Jon,
If you are able to find a sample agreement, would you be willing to pass it on to me? I would greatly appreciate it!
Best regards,
Lon
I understand. The right protection is always best; even if it costs a bit more.
Thanks,
Jon
Thanks for the imfomative replies.
I have another question. Does it matter where I find a commercial mortgage agent? For example, if I live in New York, but happen upon a deal in a different state, can I secure financing in New York for the property?
Thanks!
Amedhussaini,
1.Yes, you will have to present the credible info to the lenders. Each lender will have their own method of receiving and analyzing that info. Your commercial mortgage broker will know what the lender wants and how they want it submitted. Some have short applications, others have long ones. Some are paper, others will only accept the info on their own digital application. They will usually include a loan summary form (complete with color photos of the property, an income and expense statement (prior 2 yrs and YTD), current rent roll, personal financial statement, purchase and sales contract or offer to purchase and all amendments. They may also require a tri merged credit report, although that won’t be the determining factor.
2. In my experience, I have never seen anyone obtain financing based on the course work that they had in college, however a great education definitely doesn’t hurt. Prior experience does go a long way. Many times a guy with more experience is more attractive to the lender than another guy who may have more money to put down. The majority of lenders will only leverage an apt deal up to 80%. Getting 90% is definitely doable. As far as no money down goes…..there is always gonna be some money put down, it doesn’t necessarily have to come out of your pocket. Just so that you’re not disappointed, be ready to put 10% down plus another 2-3% for closing costs. If you’re willing to take on a partner, or have a cash investor, you may need less.
3. As far as interest rates go, that is dependent upon the deal and the lender. Each lender will have multiple loan programs and each program will have different rates and terms. Without a lot more info on the deal, it’s hard to put a finger on what rate you’ll get.
4. Call around and interview a few management companies. Generally they will charge 5-6% of the effective gross. Some will charge an additional fee or onsite salary also.
If you have any further questions, or need someone to bounce your ideas off of, feel free to contact me.
_________________
Please no contact info[ Edited by ypochris on Date 08/12/2007 ]
call some banks. talk to some commercial loan officers. It depends on the property type, age, location, if its leased, etc. etc. etc.
submit a query on one of the commercial broker sites. c-loan, looplender.
I can provide a quick quote if I know the
type of property apt, office,self storage, ect.
your credit score
occupancy of property and length of leases
current cash flow
your net worth.
[addsig]
Try Martin Weber at 214 328-2800 He has just introduced me to some impressive financing programs for commercial investments. [ Edited by thedared on Date 08/08/2007 ]
csw5764,
That is impressive. Is this common? May I share my email address with you? I do not need this loan right away, but within a year I suspect I will need one.
Amed
I am a CO RE broker with a client in CA and the partner in OH we just closed on Friday on a small non-owner occ office condo in Phoenix. NNN leased at a 9 cap. Financing was 8.25%, 20 year am and fixed for five. 75% LTV. Lender fees a flat $2k. Closed in less then 2 weeks. It was the best I could find due to out of state buyers and one had a 4 yr old bk.
i was just quoted the following for stated income 200k loan
website offered upto 85%ltv and 700 minimum credit.
note the difference credit is getting tight even for A paper
borrowers
"thanks for the opportunity to compete for your business. Based on the
information provided, here are some rate and term options available:
5/25 Year ARM: 8.16
5/25 Year Fixed: 8.83
10/25 Year ARM.: 8.16
10/25 Year Fixed: 9.00
Prepay Penalty: 3,2,1
Maximum LTV: 75%
Rates assume a 720 minimum credit score. Add approx. 50 bps to the rate for
credit scores below 720.
Total Costs: 1% of loan amount includes all lender and third party costs, there
are no lender point and no add on junk fees. Does not include title."
Good Luck
KJ
I would say you have to like the neighborhood
how can you fix it up cheaply to increase rent
what can be done to reduce costs (e.g. was the water high due to leaky facuets?)
I am by no means trying to jump your deal, but what part of columbus is this in? If it is one of the northern suburbs it makes it slightly more attractive, but if this is in anything but a nice neighborhood with solid school (dublin, UA, Hilliard, etc....) I would probably walk away.
Jeff
I think your ability to raise rents on exisiting tenants will be hard in the short term. The existing landlord IS raising rents by installing separate meters....that is how the tenants will look at it as their leases are renewed, and some may leave if they can go elsewhere that pays these utilities. Assume no rent increase IMO and a slightly higher vacancy unless you are aggressive about filling the units.
rglover,
Thanks for the reply.
Yes. They are all two bedroom units. And the neighborhood is a very stable lower middle class area. There are still lots of owner occupied near this building. The tenant mix is section 8 and non section 8. I do know firsthand that sec 8 pays 500-535 for 2 bedroom units when tenant pays gas and electric.
But what about the purchase price? I know what the owner is doing. He is selling at a very low cap rate because of the forced appreciation that will take place once the new owner rents the other 2 units...which will be cake (for me.) I can literally rent units in a matter of days for sec 8 and non sec 8 and still get a quality tenant.
Anyways, what are your thoughts about the low cap rate?
Other than choice of tenant, why care if he rents the 2 units, so long as the price is the same and the rent / unit.
Other than choice of tenant, why care if he rents the 2 units, so long as the price is the same and the rent / unit.
That sounds good .
Did you think about the other down side .
What if you only have 4 units rented 8 out of the 12 months a year .What is your cash flow then.
[ Edited by dominicthepest on Date 08/21/2007 ]
sounds like an iffy neighborhood.
What do the vacancy rates run?
Yes - your checkbook! Take it.