Posted by Russell Draper on July 22, 2009 at 14:23:41:
Honestly, I think the sale price is too high for that much income. Typically the bigger the deal the higher the ROI (and the more risk). I’d want at least double that if I’m risking that much money!
what do you think about this - Posted by Victor
Posted by Victor on July 21, 2009 at 14:19:00:
im currently looking at a 30 unit apartment building the numbers are:
asking price: 1,200,000
Gross income 193,500
Vacancy (10%):19,300
Operating expenses: 54,000
Net operating Income: 120,000
Debt service: 96,000
Assumable loan of 950,000 at 7.71% on the property the seller is willing to hold a secound. Im thinking I could assume the 950,000 mortagage and offer the seller a note but what type of note would you structure for a deal like this?
thanks,
Victor
Re: what do you think about this - Posted by ray@lcorn
Posted by ray@lcorn on July 24, 2009 at 09:15:23:
Victor,
Those look like pro forma numbers rather than actual operating performance. As such I wouldn’t make any determination on price or potential return until I saw the real numbers.
Next, check on the terms of the loan assumption by reading the loan documents. This sounds like a securitized loan, and if so there will be a restriction against second mortgages. The seller would have to hold a mezzanine position with a lien secured by the interests in the ownership entity (e.g. typically an LLC).
Other requirements for the new borrower will include a net worth equal or greater than the loan amount, a history of managing similar properties or a management company under contract, and an updated engineering report which may create new CapEx escrow requirements.
If it isn’t a securitized loan, then the above doesn’t apply, but if it’s a bank loan expect to sign a personal guarantee. What usually tanks a bank-held loan assumption is they rarely let the original borrower off the hook.
I’d do this preliminary footwork before making a decision to pursue the deal.
ray