Ed,Ineed advice! - Posted by Sue rod

Posted by Sue Rod on February 02, 2003 at 14:41:35:

Ed,

Thank you for your advice. I learned from this experience that it is not worth dealing with a seller who has no records of income, yet wants to get the top dollar for his property.

I will try your idea of presenting the business plan. As you said it is a small chance, however I have nothing to lose but at least I can gain some knowledge.

My one concern is that if I successfully acquire the money for this deal, how I can get the down for next deal.

Sue

Ed,Ineed advice! - Posted by Sue rod

Posted by Sue rod on January 31, 2003 at 15:46:08:

Hi Ed,
I need an advice on purchasing 10 units building in NJ.
The building was built in 1940 and it is in the residential area with low vacancy rate of about 3%.
There are three new duplexes built next door in 2001 and sold for $270,000.
The unit mix is one 3/1, one 2/1, and eight 1/1.
The rent is going for $650 for 1br, $850 for 2br, and $1100 for 3br in the area.
Most of the apartments collect the going rent, but 3br is under priced for about $200 and the tenant has no lease (however, it is subject to rent control). There is not much building to compare with since there are no 10 units around the area. I know I can’t really comp with condo, but if it helps you, the 1/1 condo is going for bottom price of $80,000 and up.

TOI $80,820
5%vacancy -$ 4,041
GOI $76,779
TOE $25,337 (33% of GOI)
NOI $51,441
Cap 11%

The owner bought this building for $210,000 in 1998 and he is been updating each units when tenants move out. The building has two years old furnace, separate meters, roof and exterior is in good condition. The asking price is $450,500 and he has no intention of discounting the price. He does not want to carry owner finance. He refinanced it two years ago but he does not want me to assume the mortgage.
The owner is retiring and moving out of state. He is motivated but not motivated enough to be flexible. The problem is seller’s agent told us he did not keep the good record of cash receipts and other financial statements. The upside of this deal is the super living in 2/1 unit with section 8 and he is keeping the property neat and tenant happy.

It is my first deal (I know I should start small), but I helped my retired parents to acquire five properties in WA and managed it for about five years. My goal is to generate $1,000 /month cash flow from this deal. My credit score is excellent and I get maintenance help from my relatives since they work in the maintenance field dealing with small units to large apartment complex (up to 200 units) I have equity of about $50,000 on my house.

Do you see the deal here? if so how should I construct the finance?

Thank you for your advice

Sue

Re: Ed,Ineed advice! - Posted by Ed Garcia

Posted by Ed Garcia on February 01, 2003 at 11:34:52:

Sue,

You’re a little off on your numbers but not enough for me to rework them.

It makes it difficult to be creative when the seller won’t carry-back or the upside (rental unit that’s below market rent) is not enough to make a difference.

Unfortunately the seller is tying your hands and limiting you to other opportunities on how you can structure this deal.

Sue, $50,000 could be 10% down. If you were to go to a small local bank and pledge your home as additional security (Collateral) in lieu of down payment and the bank liked the deal, you might have a chance. A small one, but a chance. You need to show a business plan addressing your vast experience in managing and repairing Multiple Units.

You’ve also mentioned that you’ve helped your parents acquire 5 properties successfully and perhaps you can bring them in as a partner.

If the seller’s mortgage is $210,000, you might have your accountant draw up the differences of the tax advantages of a seller carry-back and him receiving his profit over a period of time. Otherwise he’s going to need a 1031 Exchange or pay a ton of TAXES.

Ed Garcia