I have read a ton and came up with a marketing plan, even found a multi-family property for consideration. I ran the analysis and know what kind of offer I can make and how much I need to finance with a 10% down payment.
Financing is the next step. I know I have to secure a loan/mortgage before making an offer. How do I approach the bank or an investor? What kind of info will they require about the property? Any advice is appreciated.
Your expenses are incredibly low. FHA assumes at least 35%, some people figure at least 40% and a number of experienced investors on this site insist on assuming 50%.
You show only 28.75% :shocked
Are you taking into consideration vacancy rates, turnover expenses, management expenses - deferred maintenance budget, etc? I have a hunch the expenses are grossly under-reported, or else maintenance has not been done much during the reporting period.
Also, what is the asking price, and what price are you considering offering? Is the place in good shape - recently remodeled, or needs work?
If you assume only 40% expenses, then you are looking at $64k expenses and an NOI of $96k, but at 50% it is $80k expenses with NOI of $80k.
At a 10% Cap Rate you are looking at a purchase of $1,600,000, $160k down with financing of $1,440,000. Assume 8% @ 25 years that comes to debt service of $12,349.06/ mo or $148,188.72/yr.
Assuming your numbers (28% expenses) then the most you could afford and have a zero cash flow is $1,200,000. Assuming 40% is correct then the most you could afford is $1,040,000 and if 50% is really correct then $870,000 is the most you can buy for.
If it has been gut-rehabbed then they had little operating expenses - because it was empty and it was being rehabbed. No wonder the numbers are so low. As soon as you have tenants in there, though, the expense numbers will skyrocket. The good thing is that you probably won’t have any big ticket maintenance items soon (roof, parking lot, etc) but you still have to budget for when they do start happening.
Plus, if it has been gut-rehabbed - they are going to want top dollar unless they over spent and are now desperate to get out of because of the soft market. It happens - but most likely it will be difficult to buy at a price that is profitable.
You are much better off on a strategy just like buying a SFR - find the ugliest apartment building not in a war zone - somethingt that with good management and maintenance you can bring up. That is where you get great profits. You can buy them cheap enough that you can turn it into a cash cow, with tons of long-term appreciation potential.
And I echo the others. This is a huge investment for a newcomer. You would be better off going after something smaller. If SFRs aren’t your cup of tea, then a smaller duplex, or 4-unit, or no more than a 6-8 unit property. They would be a much better first go. Find something smaller so you can learn without biting off too much the first time.
Of course I would get Operating Statements, Lease Agreements, Maintenance Log, etc to prove the numbers and especially the expenses. And I do understand that even though the utilities are paid by the tenants, there are a lot more expenses. I can easily get a tax record and find out if there is a mortgage.
I have requested an estimate from a managing company and will have an inspector go through if I choose to go further.
But I do have a question - How do I approach the bank or an investor? What kind of info will they require about the property?
Also, I am not familiar with the phrase “New Green Card” that was in the details of the property. What does that refer to?