Posted by tyler, nc on January 02, 2003 at 08:34:55:
If you’ve done your due diligence and your confident on your #'s. Submit an offer with a 80-100%loan (what you can handle, with no payments for 1st 6months, interest to acrue with a 2-3 yr balloon. this will give you time to fill it, then get him his money when you refi. this is just a rough guideline, tailor to your circumstances.
NEED ADVICE BY WEDNESDAY NIGHT . . . - Posted by KWW
Posted by KWW on January 01, 2003 at 24:38:00:
First, Happy 2003! I wish everyone on this board a rich and prosperous NEW YEAR! Together, we can make 2003 a great year for all who want to make it free in 2003!
First, some background . . .
I have found, what I think, is a very good real estate deal. I do not have perfect credit, but, consider it to be good. The deal is a 12 unit rental that has the following details - 7 studio apts. for $165/mth, 4 1Bdrm for $210/mth, 1 2Bdrm for $225/mth. Taxes are approx. $3000/yr. Currently, 3 units rented with a verbal commitment for a 4th. Asking price around $96K, however seller is willing to go down to approx. $80K. The prop. has an assessed value of $109K and is in an EXCELLENT neighborhood, close to schools, close to church, etc. The seller has stated they would carry 50% of the sale in a contract and wants cash for the other 50%. I have negotiated that a local realestate agent could serve as a partner free of charge to assist with the vacancies. This looks like a deal I need to do, but seller would like it done soon! Actually, by Thursday.
Now the heart of the questions. . .
How is the best way to structure this deal with little or no money down? Can I go to the bank and ask for a $40K loan and use the contract $$ as the down payment?
Any ideas on how to get into this quickly?
When you figure even a 10% vacancy, this pencils extremely well and the local market is NEEDING rentals. The rental units are underpriced at the current rental rates. I figure a conservative $1000/mth cashflow after P/I and expenses. The renters pay all utilities.
HELP! I really need the advice of those experts who contribute reguarly to this forum. I will check back soon!
Again, HAPPY NEW YEAR!
Re: NEED ADVICE BY WEDNESDAY NIGHT . . . - Posted by Robert O
Posted by Robert O on January 05, 2003 at 14:19:00:
A few words of advice…Although I am not familiar with your local market, where I am located studio apartments have a much higher turnover rate than 1 or 2 bedroom units, so be sure to figure in your vacancy rate accordingly. GOOD LUCK
Re: NEED ADVICE BY WEDNESDAY NIGHT . . . - Posted by ray@lcorn
Posted by ray@lcorn on January 01, 2003 at 14:31:10:
KWW,
There are way too many unknowns here to make a decision or structure the deal. My guess is that it doesn’t really have to be closed Thursday, but rather could be put under contract. That contract should have standard clauses for the performance of due diligence investigations, and acceptance by the buyer of the results.
Unless the seller is wiling to subordinate the 50% carry back mortgage to a first mortgage, there isn’t a bank anywhere that will loan behind the seller mortgage.
Your income numbers are fantasy. The building has 75% vacancy, not 10%. You will not rent all the units the day you close. It will take some time, and you have to determine through basic market research how long that is likely to take. Hint: It almost always takes longer and costs more than you think. You have to build the first year income projection based on that rent-up scenario.
You also need the true operating expenses in order to complete the information needed in the income projection to determine the Net Operating Income (NOI). Then determnine the total debt service and subtract that from the NOI to get the projected cash flow. My guess is that it will be negative the first year, and you need a plan to cover the shortfall. Do you have the reserves to carry the project until it achieves a stabilized occupancy?
Last, I don’t know what your relationship is with the agent, but making him a partner in return for filling vacancies is expensive help. A management company rarely charges over about 7% of gross rents, and is much cheaper than a partner unless the partner has something else to bring to the table. Is he prepared to help with the negative cash flow as well?
To get the deal moving quickly, discuss the position of the seller financing first. If the seller won’t agree to being in a second position, then you’re going to have to create a different structure. A cash flow mortgage or a master lease with an option may work to acquire the property, but you wil still need a plan to turn it around. I would tie up the property by placing it under contract, including a thirty day period to perform due diligence, and then propose the structure after all the present unknowns are known.
Some questions that have to answered immediately are why 75% of the units are empty? What is the market occupancy? Are there deferred maintenance issues that have to be addressed in order to make the units marketable?
Best of luck,
ray
Re: NEED ADVICE BY WEDNESDAY NIGHT . . . - Posted by tony
Posted by tony on January 01, 2003 at 10:10:41:
the first ? would be why are there only 3 units rented? ?#2 why is the current owner selling? If it sounds to good to be true. well you know the rest. IF the area needs rental why are only 3 units rented. Also i wonder what part of the country this building is in, the rents sound so low. i live in chicago and rents here are so much higher.
Re: NEED ADVICE BY WEDNESDAY NIGHT . . . - Posted by KWW
Posted by KWW on January 01, 2003 at 11:49:24:
The prop is in the Midwest. The current owner lives several hundred miles away and wants to sell now so he does not have to worry about managing the property.
As I stated, I have worked with a local realator to assist with the rental of the property.
I know it sounds very good. That is why I want in, but want to know the most effective and efficient way to do it.
Please advise!