OK, so I’m really interested in this 46 unit bldg I saw over the weekend. I just spoke with my attorney who I dealt with on all my residential purchases. So I guess I kinda blind sided him with a 46 unit commercial income property but he almost sounded insulting to me. Like do you know this and you gotta do you due dilengence. and you need this much money blah blah blah. He said he didn’t mean to sound skeptical but I almost took offense to his tone and the way he worded his questions.
He suggested talking to his CPA to see if the numbers really worked. I told him I would give him a call but I already know the numbers work. Is this how the process goes. Should I involve myself with a CPA first? Below are the numbers.
List price: 1,995,000
Gross rents: 358,000
vacancy rate: 10%
net rental income: 322,800
Expenses
Electric: 12,580
Gas: 7,220
Repairs and Main. : 12,000
Water and Sewer: 9,201
Cable: 3960
Insurance: 17,704
Licenses: 600
Manager: 18,000
Security: 10,400
RE Taxes: 20,487
Phone: 691
Total Expenses: 112,843
NOI: $209,957
Cap rate: 10.5%
dscr: 1.22 based on list price and the 90/10 combo loan I am able to obtain. 7.5% on first and 9.5% on second.
Total cashflow per year is $38,741 excluding the laundy income which is about $300/month
The property is submetered for electric but currently operates as “all bills paid”. It has 4 boilers less then 10 yrs old for each floor.(4 story bldg).
Bldg is located in a great market. Economy is strong and developers continue to build.
Should I run this by an accountant? This is on the market and the agent has been showing since the middle of last week. Should I draw up my own LOI? What would be the first couple steps to get the wheels in motion?
You’re asking for advise on how to proceed and the one thing you say you can do is the one thing I think is the most unlikely!
You say your attorney has helped with all your “Residential Purchases”.
I assume that is the majority of your experience.
90/10 Combo loans are available all day long for 1-4 unit residential purchases.
Not Commercial Purchases.
You will be very lucky to get a 90% loan for this size property and if you can arrange 100% (without owner financing), please let us know the details and who provided it as many of us would like to know.
Before you proceed, it might be wise to make absolutely sure you can actually obtain the financing rates and terms you have quoted.
I Really think someone quoted you residential rates.
Contact your lender and provide the information they need to issue a Letter-of-Interest, letter-of-Intent, etc. whatever they choose to call it.
In the mean time you need to get the property under contract.
But, I would recommend asking the seller to allow a week to 10 days to do your own due diligence before you actually sign a contract.
Once you receive the LOI from the lender, it usually requires you to sign it and send in some form of payment to cover a portion of the due diligence/appraisal, legals, etc.
At that point the lender should be guiding you with what they need from you and seller as far as information and documentation.
Oh, I was under the impression that an LOI can be from the buyer or lender. I’ve done all the due dilegence I can as far as I know before entering into a contract. I thought an LOI is not binding. Why would the lender want a payment with the LOI? I thought the real due dilegence/inspections/appraisals can’t happen until you enter into a purchase agreement/contract?
Address:
Property:
Purchase Price:
Earnest Money Deposit:
Financing: Buyer’s ability to obtain financing on terms acceptable to buyer within 5 days after approval of the loan with no more then 60 days after opening escrow.
Closing Costs: Seller is responsible for 3 percent of Buyer’s closing costs.
This Offer to Purchase is subject to the following Contingencies:
Approval of title report, books and records, physical inspection reports, and loan documents, or any other information requested by buyer within ten(10) working days from the receipt of same.
Seller shall furnish a report from a licensed pest control operator showing property to be free and clear of any visible infestation from termites, dry rot, and fungi. Escrow holder is instructed to pay for said report and/or work completed from funds due Seller at close of escrow.
Buyer’s rights hereunder may be assigned to a partnership, corporation or other party, and any such transfer shall have all benefits including rights of specific performance, damages, and enforcement of warranties, that Buyer has under this agreement.
Current Evictions, if any, must be completed prior to closing. Buyer to have final approval of any rental agreements, service contracts, and/or leases during escrow period.
Seller to deliver marketable title and warrants at closing that, to the best of the Seller’s knowledge, no part of the property is in violation of any existing codes, health or safety regulations, and is not involved in any governmental or judicial proceedings.
Buyer has the right to extend the date for closing of escrow by releasing the Seller through escrow an amount equal to one-quarter of the earnest money deposit for each 30 day extension requested.
Seller warrants that at the close of escrow all plumbing, heating, cooling, electrical, appliance and mechanical apparatus to be in working order, and roof to be in proper repair and free from leaks.
Seller is not aware of any structural defects or adverse geological and/or environmental conditions affecting the property.
Evidence of title is to be in the form of an owner’s ALTA (American Land Title Association) policy of title insurance.
The undersigned agree that any unresolved disputes will be submitted to either the American Arbitration Association or the Judicial Arbitration and Mediation Service for binding arbitration.
FOR SELLER: It is understood that Buyer is purchasing and Seller is selling the subject complex at a minimum scheduled gross income of $358,800.00(or greater as outlined in the statement of operations), as if the complex were 100 percent occupied.
ESCROW PERIOD: 60 days or sooner by mutual consent.
COMMISSION: a broker does not represent Buyer; therefore all commissions are to be paid as agreed upon in the listing contract with the Seller and Seller’s listing agent.
This constitutes an offer to purchase the described property. Unless acceptance is signed by the Seller and delivered in person or by mail to the address below within ten (10) working days, this offer shall be deemed revoked. Buyer acknowledges receipt of a copy hereof:
Mr Lightbeing,
I think I might use this myself!
I too am looking to purchase large apartment complexes and would like to know how this one turns out for you. When do you expect to make an offer?
I can’t take credit for this one. It’s actually Mr. Eugene Vollucci’s offer letter. It’s one of many that I will consider using. I’ll keep you posted on how the purchase goes.