Hi. I’m new to this website but was wondering if someone could offer some advice:
I found an unheard of 6-unit building for $450K that’s a “moderate fixer-upper.” I’ve never done this before, but my plan would be to buy it, fix it and rent it out or sell it in the future. It would generate a positive cash flow even after putting money into it for repairs.
The problem is that the seller is requiring all cash with a fast escrow which means I’d need a hard money loan. I’m so nervous to do this (but excited at the same time) because I’m essentially doing it on my own. Any suggestions as to what kind of team I would have to put together?
Howdy Norma:
Of course you need a hard money lender. You will also need an appraiser but the HML will want you to use their guy or chose from a list of their buddies.
How do you plan on getting the rehab done? If it were me . I would hire all the subcontractors to avoid the expense of a general contractor. Get a painter, carpenter, plumber, electrician and get bids for all the work that needs to be done. Some of the work may be able to be done by a handy man instead of a licensed plumber etc.
You may consider hiring a management company to oversee the leasing and collections.
It is great to start with a moderate fix up instead of a major one.
To submit the offer to the owner you may need a pre-qualification letter from the HML. You can get one in a day or two but start that action today.
They will want you to have a few dollars in the deal of your own. Some will allow you to borrow those funds as well on a second mortgage or a second recorded after the first mortgage has funded (undisclosed second).
The HML will also need a breakdown of the repairs that you plan on doing and a detailed cost of each. Be sure to include everything and be as thorough as possible.
One thing for sure to keep in mind is the sale price of other properties similar to yours in the area. You may want to get a Realtor to help with the comps so you can tell the HML what your deal will be worth after you finish. Do the same with rents in the area. Know your market. Be able to quote address etc that sold for XXX and the apts at x st rent for xxx but are smaller by 50 SF. Know your market !!! Did I say that twice? You bet it will pay off too.
Keep in mind that HML will only loan a max of 70% of the after repair value including purchase price and fix up costs.
since you sounds kind of new to the REI game, first and foremost, get someone experienced to go with you to look at the place to judge the cost of rehab, help with comps and look at your cash flow numbers. In rough numbers, you will need to have gross monthly rents in the range of $4500/mn for this building to be breakeven (under optimal circumstances with conventional financing; including mgmt fees of 10%; yes you will need property mgmt!).
Be aware that to re-fi with a conventional lender later on, this will require a commerical loan since its more than 4 units.
Lastly, while it looks like a great deal , DO NOT get in too much of a hurry just becuase then seller is creating some urgency. I’m sure he is telling you how a great a deal it is, but be sure to verify that thru your own resources.
Good luck