Posted by Don on November 22, 2005 at 16:13:42:
I dont look at a property unless I can get around $200 per month in rent for every 10k the property costs me. In other words if I pay 30k for a property I want 600 per month rent or very close to it.
want to buy apartment building but need help - Posted by CC
Posted by CC on November 17, 2005 at 13:38:00:
Ok, I posted below also about financing questions. I am very interested in getting started in apartment building investments.I realize from some responses to my last question that commercial loans are much harder to get then regular ones. I do currently only have a 590 fico score but could have a co-signor with arond 700 credit score and long term employment. I found this deal near me which is a 10 Unit Apartment Building 8 1br/1ba- 2 2br/1ba renovated building fully rented 62,000 annual rent plus. prime location in Miami Beach. I would like any ideas or thoughts on how I could get involved in this deal in my current situation.
Thanks for any help
CC
Re: want to buy apartment building but need help - Posted by wes
Posted by wes on November 17, 2005 at 14:40:54:
Why would you want to.
If you could put 20% down and only get a $580,000 loan, at 6.5% your annual mortgage would be $44,000 (assuming 30 year amortization).
Once you subtract expenses, Taxes and Insurance from that $62,000 rent, I cannot see this property meeting Debt Service Requirements for a loan…
Re: want to buy apartment building but - Posted by CC
Posted by CC on November 17, 2005 at 13:39:09:
I forgot to mention the building is listed at $725,000
Re: want to buy apartment building but - Posted by CC
Posted by CC on November 17, 2005 at 15:01:52:
can you explain to me the Debt Service Requirment for a loan. Also where did you get the 20% down number? i am trying to figure out what a acceptable rent to purchase price figure is.
Thanks
CC
Re: want to buy apartment building but - Posted by wes
Posted by wes on November 17, 2005 at 15:45:56:
I’ll tell you what a Debt Service Requirement is.
You tell me what an “acceptable rent to purchase figure is”…
Debt Service Requirement is a ratio lenders require as part of the underwriting and approval process for a commercial loan.
Basically you take your monthly Net Operating Income (NOI) and divide it by your estimated Monthly mortgage payment. For instance using your rent number of 62,000 annual. Lets just say you can keep all that money and not have any expenses, taxes or insurance.
If your annual mortgage payment is $44,000 then your Debt Service Ratio is (62,000/44,000 = 1.41). For Apartments, most lenders “Require” this ratio to be at least 1.20 or higher.
Therefore, after you subtract your expenses, (lets use a very conservative $20,000), That would put your NOI at $42,000 and your Debt Service Ratio at .95. A number less than 1 means your NOI is less than your mortgage payment. Not good and something lenders do not want to see!!!
I got the 20% down from the fact an 80% Loan-to-value (LTV) is the (most common Maximum Loan) you will find for commercial loans.
Also the fact that in looking at the numbers and even at 80% ($580,000) the property does not cashflow well enough for you to likely qualify for a loan. Therefore if you were hoping for a larger loan it would be even more difficult to obtain…
Re: want to buy apartment building but - Posted by CC
Posted by CC on November 17, 2005 at 15:59:15:
Thank you, that is some good info that i did not know. I guesse my “acceptable rent to purchase figure is”… was just a bad way to word what i wanted to know. thank you