The price is fair market value based on the current NOI, but there is definitely some upside - the current owners have been burned out for awhile now and want to sell. If I wasn’t willing to buy, it would be on the open market. The building is in one of the absolute best locations in my town. Yes, the property will cash flow - sellers are okay holding the second without payments. I am buying because this is a great opportunity to get started in this business and I know this property very well. It has been well maintained and performs well year after year. Yes, the bank knows about the second. Any other thoughts? Thanks!
I am exploring options for purchasing a 26-unit apartment building from family members. This is essentially a first generation to second generation transfer of a property that has been in the family for decades. The first generation owners need to cash out to help fund their retirements, but are willing to finance up to 40% in a second (subordinate) mortgage on very favorable terms for at least a 5-year period (maybe longer if necessary).
The proposed purchase price is $1.9M, which is full market value for the property.
A local bank has proposed a loan for 60% on a 20-year (possibly 25-year) amortization at 8-9% interest. I can probably make the numbers work on this, but thought the interest rate seemed kind of high. Any thoughts on this?
Also, I have been looking at this from merely a straight-up purchase since the owners need an installment of cash up front. Can anyone think of any alternative transaction scenarios?
Re: Apartment Loans / Transaction Ideas - Posted by mark prideaux
Posted by mark prideaux on July 28, 2010 at 15:59:32:
60% LTV at 7% for 25 or 30 years is happening via fannie and freddie. So yes seems a little high. Is deal an arms length deal as far as lender is concerned? Also, knowing nothing of this apt, is $73K per unit high? Deal structure seems reasonable. Will property leave any cash flow after all debt service? Does bank know about second? Why are you buying? Why full market value? Hope this helps. Mark