if you can verify the numbers do not be concerned. you are looking at a great deal. Also, i don’t think the dept of corrections will be going anywhere anytime soon. you seem to have strong income with a strong tenant. financing for you should not be a problem. but, make sure you VERIFY the numbers. i hope this helps.
While the numbers look good from an evaluation standpoint. Your financing might still be a problem.
I have no doubt you could get a loan based on this particular tenant. But you mentioned 100% financing.
Unless your seller is owner financing the whole thing, I would doubt you will see any lender offer anywhere near 100%.
I would think 15% down would be about the least you would have to put down and 20% being a more likely number.
Also you have a single tenant that has a lease ending in 2010. You might have an issue with that fact with lenders, as they would be concerned your only tenant might decide to move in 4 years.
Unless you can show you are capable of paying the note with the property generating “0” income for some period of time, this could be be an issue…
Just a few things to consider and questions you might want to get answered from your potential lender before you jump into a deal that looks good on the surface.
I was only using 100% financing to show that it still cashflowed using the most leverage possible. But I honestly don’t have 15-20%. Although, I think the seller may be interested in a carry back of 15% and I could possible come up with 5%
Sounds like a good deal but the fact you can only come up with 5% or so of the downpayment is going to cause you difficulty in financing.
However, this is a case were a possible idea would be to find a (money) partner. Set up an LLC for this property and the Money partner would obviously have a larger ownership interest in the LLC than you. But, you could still have a percentage ownership in the LLC for your part in what you can contribute as well as you finding and putting together the deal.
I know of individuals that have done this on 100+ unit apartments that were purchased at multiple $1,000,000’s of dollars and the individual never put a penny of their own money into the deal. However, they ended up with 10-20% of the deal based on them finding and putting it together for other investors.
Just a thought for when you do not have enough funds to do it on your own…
I got your email. I don’t think finding financing will be a problem. But, check the lease from the department of corrections. In researching a program for you, I found that state leases have BIG loopholes. Please get a copy of the lease agreement and REVIEW IT CAREFULLY. You may be stuck with a tenant that could leave on one day’s notice. Let’s talk via email this weekend.
I would have to agree with Wes and Keip007. There are almost always loopholes in the leases from State Agencies. I also have to say that I have heard of a very few lenders who can do 100% financing. I have inquired about a few, but no one ever performed. If this were true of the 100% finance option, it would only be possible with a networth equal to the loan amount you are trying to acquire, or enough personal income to cover the loan payments. Lenders are all about risk, and a borrower with no real interest in a property (other than ownership), is the biggest risk a lender can take. They need a commitment from the buyer to show they have something at stake if the property is run into the ground. I can’t see this being done without a partner.
I have experience dealing with government contracts. To me, the key point in your case is whether or not you could make the payments on the loan for this property if the contract went to someone else. I estimate that the payments would be about $35,000 per month!!! In addition, you should know that commercial properties can stay vacant for literally years. Therefore, in my opinion, most (if not all) or the mortgage should be paid off during the term of the lease.
Another important factor in dealing with government contracts is that politics, friendships, family ties, illegal bribes, etc all come into play. Most government contracts have to be rebid at the expiration of the contract. Unless the contracting officer and all other pertinent persons involved with the government are honest, then you can lose the contract unfairly. Moreover, someone else could underbid you and the result would be the same.
You make very good points. One of the main concerns I have is that it is a single tenant lease. I’m really interested in apartment bldgs but found this deal by chance. If one tenant leaves a midsize apartment bldg compared to if one tenant leaves a single tenant bldg is drastically different. However, I have yet to see a midsize apartment bldg with this type of ROI.
The lease is the major factor that a non-conventional commercial lender will look at. Thats if you want the property to qualify. The reason the numbers look so good, is because there are only 4 years left on the lease(maybe the lease is wacky also and the seller knows it).
If you want to get financing on this type of property, your loan will be co-terminus with your lease. ie. you will have a balloon in 4 years.
The down payment you mentioned will be a problem for a lender, but you can fix it.