hi every one. I came across a deal on the mls listing i am interested in. It is for three apartment buildings in my area that i grew up around. I allways dreamed of owning them one day. Now i see it is for sale for 1 million dollars. after looking at the income statement and running a mortgage calculation. this property nets after debt service 55,000 dollars anually. Am i a fool for wanting this property for my first investment? I figure i can hire a management co. to run things. how do i qualify for financing on this big of a project? Or am i just dreaming. Thanks for the help
Do you have a copy of the income statement? If so, please share it, I’m sure we can pick it apart…
What numbers did you use for your mortgage calculations? Anything close to what you’d likely qualify for?
iron eagle,
Personally, if this is your first investment, I would say that it’s way over your head…you should start small and build…
But that’s just my opinion…
Like Danny said, put up the numbers and the folks here will take a shot at it for you…
Keith
What kind of money do you have available for a downpayment and cash reserves?
Hi Iron Eagle,
There are lots of very creative financing options . . . let us take a look a the numbers and try to help you.
Keith’s question about your level of experience is a good one . . . consider it strongly and if you still decide to proceed, hopefully you’ll be better prepared.
Seller financing is a great alternative if available especially in this market were institutional lenders are pulling in their horns and traditional retirement plans are not providing what a lot of retirement age folks are looking for right now.
So, let’s see what you have and if we can help you.
Cate
Everybody has reservations about the deal, versus your experience level. But the real issue with experience is not the cost of the buildings but how big are these buildings. For instance in Houston you can get 10 duplexes (20 doors) for about $1 million. Most smart people can manage this first time out of the box.
ok here are the numbers. i have only about 20,000 for down payment. would like to do 0 down if i could. Expenses: Annual Gross Income: 240,652
Annual Electric Exp: 6,833.19
Annual Gas Exp: 40,026.35
Annual Othr Fuel Exp: 0
Annual Water Exp: 8,834.82
Annual Sewer Exp: 6,000
Annual Garbage Remvl: 3,053.84
Annual Real Est Tax: 22,822.66
Annual Fire/Liabilty: 14,156.43
Annual Flood Ins: 0
Annual Lawn Maint.: 0
Annual Snow Removal: 540
Annual Other Misc: 4,269.39
Total Annl Expenses: 106,536.68
Anl Net Inc b/4 Debt: 134,115.32get in with 0 down see what you guys think.
You stated you wanted to hire management, but I don’t see that in your expense column… Another missing item: Vacancy & Bad Debt… What about Advertising Costs?
When I look at commercial property I request a Schedule E section of their tax return for the past few years. The schedule E is a good tool to see what their expenses and revenues are.
Well vacancies and collection losses aren’t operating expenses, they would be subtracted from the potential gross income (PGI) to get the effective gross income (EGI).
Assuming those are all accurate income and expenses (verified by the tax records), next step is to figure out what the expenses will be for you. It’s hard to tell what the miscellaneous expenses are but there are no;
- administrative expenses (fuel, office supplies, whatever)
- advertising
- legal fees (lawyers, court costs, damages, evictions, contracts, etc.)
- accounting fees (taxes, income statements, etc.)
- maintenance
- property management
- reserve for replacements
All of which you will have to pay for sooner or later. Figure out what all of these things with cost you, then you’ll have some accurate numbers to work with. Deals seem a lot less sweet when you work past the sellers fake numbers.
Iron Eagle,
Request a Schedule E from the seller’s Realtor (if you don’t already have it). If someone from this site debates the validity of the schedule E, then ask for it anyways and deside for yourself if you find it useful.
Personally I find it very useful in getting a big picture of the properties finances.