I just started reading this forum and I have to say the information here is priceless. I have a question that I hope someone here can help me with.
there is a property I would like to purchase it is a 28 unit apartment building that is a rehab project. At the present they are 20% occupancy, but in the next 90 days they expect to be at around 80% occupancy. the property is going for 699k, the 1st mortgage is an assumable mortgage for 471k, and 228k for the 2nd mortgage.
How would I go about financing the property, would I have to obtain 699k mortgage to pay of both mortgages, or would I have to just get 288k for the 2nd mortgage and then began payment on the 1st.
$699K for a rehab project that is 80% vacant? How are they intending to increase the occupancy to 80%? Don’t buy their projections unless you want a quick trip to the poor house. If they can turn the property around and get it to 80% occupancy and keep it there for at least a year, then you can talk to them about a $700k property. Do yourself a favor. Go get a book called “The ABC’s of Real Estate Investing” by Ken McElroy and read it before you decide to buy any apartments. It has a lot of good advice for you.
From what I so far understand, the building is finished major rehab and is in clean up stage, painting light fixtures in hallwasy, etc. They are training a new building manager in order to began fully re-renting to tenants, this is supposed to take 90-120 days. Although I do not know what method they will use to attract tenants.
the numbers are a little risky and think it would be all hell of a first bite to swallow. But just in case how does that work for the 2 mortgages? would I just assume payments for the first mortgage of 471k(which is assumable) and then just get a loan to pay off the 2nd mortgage? or would I need one big loan for 700k.
Either scenario with the mortgages is feasible, but it is unlikely that you will be able to get 1 mortgage to cover everything. Most finance companies are going to want you to put 10 to 20 percent of your own money into the propety, otherwise when you start having a negative cash flow, you would just walk away and leave them with a propety they don’t want. This type of property sells based on its income. You need to base the purchase price on the last years income, not next years possibilities.
“You need to base the purchase price on the last years income, not next years possibilities.”
I understand. I was hoping that it would be possible to get a 100% coverage, when I think about it what you say makes a lot of sense. It would be to much of a risk for an lender to put up cash based on projections rather than whats been establish as far as cash flow.
thanks again wilson … yeah the risk are great considering this would be my 1st purchase. I also looking at much smaller properties that have good income, and full occupancy.
I am a noob myself looking to make my first deal on single family homes (SFH), however here is my thoughts on what I would do IF this deal was a DEAL.
I would assume the first mortgage and continue to make payments to the holder of that note.
Then I would find info out on the 2nd note. How long has it been around? What was the starting value for? What are the payments? Then contact the holder of the 2nd note and ask what he would take cash TODAY to cash him out. If the note has been around a while and the payments left on it are several more years then he may settle for say $180k? Dunno I am still a noob, right? Maybe you can get him to give it up for $100k NOW!
At that point, you can figure out how to get the cash to buy this note yourself OR use resources like this and other websites and find someone willing to buy the note. I am a noob so not sure how to swing it, but somehow either get some cash for swinging the deal or somehow get the balance due lower than the current $228k.
Now you have a property that supposedly is worth $699k for $571k or so…
My question is the numbers don’t jive on the deal cuz obviously whoever owns it now, spent money to rehab the place and why would they be selling it for the same price as both of the mortgage balances??? That would mean they are selling the property to come out of closing with NO PROFIT?! Wierd…
Yeah that a good suggestion, I ran it past my lender and he says it highly possible … but like wilsontaylor says, the lender thinks for a 1st purchase its a very risky prospect, especially given the high vacancy in the building. I will mostlikely start how you are planning to start … single family homes, however I am going run through this situation just for the experience…
But from what I am being told you maybe right … one could possibly control the building by assuming the 1st mortgage and then cashing out the 2nd lien at a severe discount …
Hey thanks for the advice on “the abc’s of real estate investing” the 3 cd set arrived today, I had a little chance to listen to some of the material. This is exactly what I needed. … anyway I’m going to sit through it tonight and formulate a proper game plan for multi-unit apartment buildings.
Does anyone here have any Robert Allen material? if so, what do you think about the guy? is his stuff anygood? I ask because someone recommended “creating wealth with real estate”.
I have read some of Robert Allen’s material, but not the book that you mentioned. I felt it was a little superficial. He is supposed to be one of the guru’s of real estate, but I did not find his book that helpful.
GRM stands for Gross Rent Multiplier. it is a formula my lender and I use to quickly determine the value of rental property. Rental property value is based on rents much more than what the actual building is worth.
Basically GRM is this: multiply the gross annual rent by either 11 for a property in excellent condition, 9 for a property in good condition, or 7 for a property in fair condition. The result gives you an estimate of the value of the property based on current rents. You can use this to project future value as well if you plan to rehab and rent for higher amounts.
The Capitalization % formula give a closer and more comprehansive value of the property because it takes into account annual expenses.
… anyway I’m going to sit through it tonight and formulate a proper game plan for multi-unit apartment buildings.