Hello,
I am looking for help / ideas on how to do a purchase of a 6 unit apartment building for sale.
Here are the facts:
buildings are selling for around 600K.
each unit can sell for about 120K but are currently leased to renters
Is there any way to convince the bank to loan me the money to buy this property with the idea of selling the units back to the market?
Any help / ideas appreciated. Thanks.
In chicago,
Andrew
That exit stragety is what goes the whole mortgage industry in an uproar and making everything closape.
Run the numbers on the building.
What are all the expenses (add 5-10% for vacanies if it is 100% filled)
Utilities??/ Insurance?? Taxes, legal fees, management fees, upkeep, etc are all the figures you need plus more…
Now when you have those figures you will know your expenses…
Figure out how much the mortgage will cost each month.
If your expenses and mortgage are not more than total rent collected then not a good deal
Many investors feel have different feelings on the profit per door.
But a good example… If your mortgage and expenses are $2000 a month, may investors will say you need to have a rent roll of $4000 a month. others will do it at $2500-$3000 a month rental income…
I agree with yrush2000 that you should run the numbers, but I don’t think the exit strategy is necessarily a problem.
If you’re looking at a $600k purchase price and assume a traditional commercial MF loan (80% LTV), I estimate your debt service at ~$38/y. If you assume standard debt service coverage of 1.20, you’re needing ~$46k/y in net operating income. Can the property generate that? (It is possible to find financing below 1.20 DSC and above 80% LTV, but you pay for it in rate. And your personal financial strength will become more important.)
Regardless of your exit strategy, I suggest you want the property to make sense in case you cannot execute your exit strategy. By the way, the exit strategy, as I understand it, is an interesting one (IMHO). Negotiating the separation clause with the lender might be a challenge. Gives the transaction the flavor of a condo conversion.
Good luck,
Steve