Rafiq, thanks for the referrals. I applied yesterday with another bank who says they will have an answer for me by next week. Let’s hope! Had I known the first bank would give me such bad terms I wouldn’t have wasted a month with them. What’s the point of having equity if you cant use it? Anyway, if this doesn’t work out for some reason, I will be contacting your sources. My credit score does qualify for your private money lender (over 700). Again, thanks!
What will the property appraise for?
How are the rents?
What does the monthly cash flow look like?
What is the vacancy rate?
Is the owner willing to carry back anything?
Who determined the cost for repairs?
Have you tried to get financing before now?
If so, why could you not get funding?
What does the area look like?
Etc., etc., etc.
I have gotten approval, but I don’t think the terms are the best I could get. This is what you might call a “distress sale”. The seller wants out and has neglected the building. He is not in a financial position to carry back a note. Bldg. needs some repairs (mainly cosmetic). He is not collecting any rents, holdover tenants will be evicted. I believe it would appraise at higher than the sale price (110,000). It is not an extremely old bldg. for this area and has lots of potential but has been neglected. Area is not the best, but not a slum. On a main street; lots of small businesses and small to mid size apts.
13 1-br. units. I plan to rent @ 450/mo. (1 unit to caretaker) 12450=5400
5 2-br. units. I plan to rent @ 510/mo. =2550
795012=95400
15% vacancy factor? = 81090
17% repairs & maint. yearly = 14596
17% is what these costs amounted to on my 14 unit last year)
What I’m looking to do is refinance my 14 unit for a lower interest rate (now 10.5), and get some cash out for this purchase and repairs. 14 unit should appraise @ 275,000. I owe 143,000.
.75 LTV * 275000= 206250
I think I should have no problem pulling about $30000 out of this property. But the bank came back with this offer:
$250000 @ either 8.25 3 yr. fixed OR
$250000 with a 3 yr. ARM at Prime + 2.5.
The 250k is for the refi (balance 143k) and includes 20,000 in repairs for the new purchase. They will loan 75% on the new purchase, which means I still have to come out of pocket 27,500 plus closing costs (.75% of 110k purch price).
This doesn’t sound like a good deal to me. My fico is in the mid 700s, and as a RE investor (small) I want to limit my exposure as much as possible.
How do my figures look? I guess what I need to know is if the terms offered me can be improved? Thanks.
This has the potential for major problems up front. Your calculations are pretty good but there is a major tenant problem.
Why has the owner not been collecting any rents? Have you talked to any of the tenants to verify that fact? If they are in fact not paying, you will have to deal with the evictions for each one.
That one point raises another major factor. During this eviction process, how much damage will be done to each unit? Do you plan on renting units while the old, non paying, tenants are there? Will this issue cause a problem for new tenants? (Them learning what’s going on within your apartment complex.)
Unless you have some backup capital or you get the seller to come down in price, i’m not to sure if I would tackle this just yet.
Rafiq, one of the conditions of the sale is that he evicts everyone in there. I’ll be taking over an empty building. The owner is in over his head with delinquent utility bills, and hasn’t pressed the tenants for rent because the gas was shut off and he doesn’t want to get involved in court battles with them. Sounds crazy, but that’s how it is. He just wants out. I was able to make my 14 unit profitable with a similar situation, though not as extreme. My offer price was based on the bldg. alone and presented as such to the bank. If the seller doesn’t adhere to my terms (among which is the outstanding utility bills have to be paid for us to close), then no sale. But I believe I can make this work. I may not be able to get 90% LTV, as I’m finding out, having made dozens of calls this morning, but I believe I can improve on the terms I’ve been offered.