First off: I really would like to avoid people telling me not to start out with an apartment building.
Okay, I have done years of research and it’s time for me to stop sitting on my hands… I found a great deal:
12 units (low rise)
annual financials:
income=68,000
O. Exp’s= 30,000
NOI= 38,000
Cap rate= 9.5%
If I only have $10 to my name, how can I acquire this property? The financials are great. I would like to use a private lender or hard money to cash the owner out and negotiate a discount on the property’s market value… My intent is NOT to flip I want to live off the cash flow, so how would I get out of private/hard money??
What specific contract/s would I use for such a deal, and what steps do I need to take?
Thank you so much, and I would be very very grateful for someone who is willing to mentor me through this deal. Thanks!
First if you have no money try to do 100% owner financing with a balloon payment(total payment) due after around 5yrs. You can find APTS on loopnet.com. stay in the range of $1M-$4M with at least 5+ units and a cap rate between 8%-13%. Midwest is the best place to find these.
Meantime while doing the Owner Finance Deal, build your business credit for your LLC buy having 5 vendors, 3 business Credit Cards and 1 paid loan, to put on your credit report; this will get you that 80D&B credit score within 90 days that commercial banks look for.
The funds paid the first 5 yrs should be used as the down payment. Understand the quick 5minute formula for evaluating APTs so you won’t waste time on APTS where the #z don’t work. Thats all I can say withhout going into detail… :bobble
Thank you, that was very helpful. Now let’s say that isn’t an option and the owner wants to get out fast. How would I work out a similar scenario with a larger property?
Let’s say:
30 unit APT bldg
NOI: 120,000
debt service: 60,000
Cap: 11%
Let’s say it’s on a land contract with roughly 800,000 left, and the owner wants out fast? How could I use hard/private money to borrow the down payment (about 250,000) and still keep the property profitable without having to beg for partners?
*For the sake of simplicity, would it be easier to buy-out the land contract ($800,000) with a loan and have the seller carry the down payment? That way I don’t have to have 2 loans on the same property, thus KILLING my cashflow?? My numbers very rough because I don’t know who’s reading these things…
I’m actually much more interested “*” Thanks for your help!!
Im not sure how land contracts operate. Hard money usually will carry higher interest rates and may need to be paid back faster. They are banking on the idea of you maybe taking out a equity loan once the property is aquired in order to pay them back.
On another note based on your numbers your DCSR is about 2% which is pretty good so thats a plus for a conventional loan.
IF the owner doesnt’ want to “owner-finance” there are plenty of property owners who will because APTS are hard to sell in the first place. If you have no money thats pretty much all you can do tho. Most agents will talk negative about this because it cuts out thier commission, so when you are looking at properties skip the middle man(if u plan to do owner finance). simply have the address of the property and call your county assessors office. Every business has to register there and contact info has to be on file. Its public information. Have a letter ready but don’t mention 100% financing, simply let them know you are an interested buyer. Im trying not to get into detail…lol, but there’s a lil more for u…
Thanks again!
I called and I ended up passing on the larger unit. But I will just go after the 12 unit building because it is a much simpler deal to handle. I just have to find a loan and that’s it, lol.
Going forward, I will try this method on an easier property with smaller numbers.
$ounds good…, but keep in mind the more units you have the more the the bank is willing to deal with you. If you have 12 units and 2 ppl move out it could impact your NOI but if you have 60 units and 2 ppl move out then it doesn’t impact so much. Google out business credit and you can see how its possible to have the money on your own within 90 dayz. “PPl who know better, do better” :beer
If the big unit is still available, why not assume the land contract of $800K. Find an equity partner to come in for the $250K. If you split the cash flow of $60k, that’s a 12% rate of return for the equity partner plus 50% owner of the building. For you, you just created a $30k yearly cash flow + 50% owner of the building with no money out of your pocket.
Sweet.
Hi,
That $60k NOI has to service the $800k land contract and the $250k down payment note!
That’s $1,050,000 in total debt land contract and equity partner!
My guess is that the $60k NOI covers a return on the land contract but does not leave very much for a return on a $250k equity share partners return?
GR
What do you mean when you say 5 vendors
GR,
According to what he wrote, NOI is $120k. $60K covers the debt service on it. That leaves $60k after debt service. If he gets a money partner who puts up the entire $250k down, there would be no debt service on it. Instead, the money partner gets half of the left over $60k which is $30k a year ($30k/$250k=12% ROI) and 50% ownership of the building.
In addition, the money partner gets tax benefits. The final balance of $30K left over goes to him for putting the deal together plus 50% ownership of the building.
5 Vendors or trade lines, meaning…Staples, Office Max, Uline, Radio Shack, etc. and ensure the trade lines report to DnB because alot of them dont. Purchase something minor, like CDs to burn, or some note pads or whatever just to get ur name in their system and they can see that you’ve been ordering from them. Usually this is done by ordering a catalog under your business name and then place orders and maybe a month later begin to ask for lines of credit once your INC up.
Yea,
It was very late at night and I must have been half asleep and Reading backwards and cross eyed.
GR