Posted by Robin Frazier on January 01, 2004 at 12:09:14:
I had never thought about that Ed. I glad you are here to keep us strait.
Can I get a $700k loan for apartment complex? - Posted by jackv
Posted by jackv on December 31, 2003 at 04:38:12:
I am looking at this 18 unit apartment complex. The cost is $700k. I have a credit score of about 720, make 45k a year, have availble HELOC of $40k, and $25k extra cash to use for purchase. The apartment complex is fully rented and monthly income is $7500 from rent, before expenses. Is there anyway someone will finance me? Owner will not finance or carry back. Local banks have said no, due to my income not being high enough. Any ideas would be greatly appreciated, as I think it would be a good investment. Thanks, you guys are great.
Re: Can I get a $700k loan for apartment complex? - Posted by Ed Garcia
Posted by Ed Garcia on December 31, 2003 at 10:54:59:
Jaclv,
What makes you think that this would be a good investment?
What do you know about the deal other than you would like to buy it?
Here are 18 basic question for you to get answered that should help you decided if this is a deal and how to work it.
We need more information before we can go any further with your deal.
(1) Describe The Units and the surrounding area?
(2) How old are the units?
(3) What’s the unit mix ( how many 1 br. 2 br etc)
(4) What’s the vacancy factor in the area?
(5) What is the gross income of the units?
(6) What is the vacancy of the units?
(7) What is the NOI?
(8) What are market rents in the area?
(9) Are there any other Units in the area for sale?
(10) If so at what Price?
(11) What are the going Cap rates in the area on multiple units?
(12) Have any other Units in the area recently sold?
(13) If so at what price?
(14) How much does the seller owe on the units?
(15) If there is a loan, is it assumable?
(16) Will the seller carry a second?
(17) Is there any differed maintenance?
(18) If so, estimated cost of maintenance?
If you answer these questions, then I can answer yours, with a meaningful answer.
Otherwise, it’s just, What ifs? or hypothetical.
Happy New Year,
Ed Garcia
Re: Can I get a $700k loan for apartment complex? - Posted by Jim Rayner
Posted by Jim Rayner on December 31, 2003 at 08:55:40:
jack,
i don’t think the problem is really your income but rather the fact that there’s not likely really a deal here at the 700K price perhaps at 450K there is.
Re: Can I get a $700k loan for apartment complex? - Posted by jackv
Posted by jackv on December 31, 2003 at 22:27:52:
Thanks Ed Garcia,
I’ll try to answer your questions as best I can.
- Medium size apartment complex, close to shopping and college. Also, other complex nearby.
2)The units were built in 1970
3)There are 12 - 2bd and 6 - 1 bd
4)I don’t know the vacancy factor for the area.
5)The gross income is around 90k/year - minus vacancy
6)Currently all units are rented and brings $7500 monthly
7)Don’t know what the NOI would be??
8)Market rents are averaging $475 for 2bd and 400 for 1bd.
9)Currently I cannot find any similar units for sale in the immediate area.
10)N/A
11)Don’t know what the going CAP rate is??
12)No other units for sale in area, that I know of
13)N/A
14)Don’t know how much seller still owes, probably a lot
15)The loan is not assumable
16)Seller will not carry second or do any financing at all
17)All of the units look okay and currently rented out
18)Don’t have estimate
Ed, do you think this would be a good deal and if so, where can I find financing, or would I even qualify? Thank you so much and Happy New Years!!
why 450K - Posted by Paul ok
Posted by Paul ok on January 03, 2004 at 08:33:31:
Could you possibly take the time to show why it might be a deal at 450K? I would like to see the thought process along with the math to see why the deal might work. please. Thank you.
Re: Can I get a $700k loan for apartment complex? - Posted by Ed Garcia
Posted by Ed Garcia on January 01, 2004 at 12:42:04:
Jack,
You?ve given us information that?s helpful but the questions that have not been answered are very important. The answers of questions 13 thru 18 would have told us how or if we could do this deal.
I?ve asked for the information once, and this is the best you can come up with so there is no sense in wasting time on this deal.
- The seller doesn?t seem to be motivated.
- I agree with Robin Frazier and Jim Rayner, the price is somewhere in the mid $400,000 with what you?re working with. It look to me like you?re a long way from there with the seller.
Happy New Year Jack,
Ed Garcia
Seller is not ready to sell to me. - Posted by Robin Frazier
Posted by Robin Frazier on January 01, 2004 at 06:52:37:
Make him an offer of say $375,783 or Owner finance for 0 down and $6534 per month at 7.29% interest. He will surely do one of three things. 1. He will turn you down. 2. He will counter offer. 3. He will accept and do the deal.
The problem of a loan not being assumable, I have never had a mortgage company accelerate as long as the payment is being made.
Re: why 450K - Posted by Jim Rayner
Posted by Jim Rayner on January 04, 2004 at 06:54:38:
Paul,
There is no way given the amount of information that we can accurately determine a price at which this deal might work. The answers to Ed’s list of questions are vital to begin a more accurate analysis.
However there are some measures that we can look at that will give us some indication of a likely value that may make this a deal. The first and least accurate is by application of the GRM[gross rent multiplier]. Generally speaking Purchase price/annual gross rent will need to be between 4 and 6 for a deal to be viable solely on its income stream. or if using monthly rent 48-60. This generally the first litmus test that I use to determine the whether or not there may be an opportunity to put together a deal.
In this case 700K is a long way from even being close. As ed said this is not a motivated seller. Because we do not have the necessary information we can not determine if there is a compelling reason to believe that this property even has the potential value of 700K on the upside. However a good investor never pays the the seller for the work that need to be done to realize the upside. Over the past three years however many properties were bought by inexperienced investors at potential values and if my market is any indication of what’s happening elsewhere there will soon be lots of opportunities for those of us who waited out this insane time in commercial real estate. We have just seen the second investor who over paid realize he just wasn’t going to make it work and has listed all his holdings at once again over valued prices. Me, i’ll wait for the bankers call to see if i’ll take it off their hands. There will be blood in the street’s soon.
Re: Seller is not ready to sell to me. - Posted by Ed Garcia
Posted by Ed Garcia on January 01, 2004 at 11:56:02:
Robin,
When you say, ?I have never had a mortgage company accelerate as long as the payment is being made.?, I agree with residential lenders 1 to 4 units, not commercial.
They can also stick hefty pre-pays that prevent the seller from paying off the loan.
Rules change in Commercial financing, different lending community.
Happy New Year,
Ed Garcia