Hey Guys!
I’ve run into a 13 unit property ( 3 triplexes and 1 four-plex). 2 of the triplex are at 65,000, and the rest 2 are at 75000 a piece. cash flows after expenses at 2000. Owner is downsizing property and needs to sell. He is will to do a seller finance, or carry down payments…I have made contact, spoken with him, but not yet made an offer.
Assuming after my due diligence, I decide to go ahead with this deal—how do i go about structuring the deal. I know from my conversation, the seller is willing to work with a buyer to make the sale happen, he is more interested in the terms than the cash (i think), he wants to know the property will be cared and maintained for…I’m just stuck trying to figure out how a seller financing can factor in with hard money lenders. Basically, I need assistance structuring this deal creatively banghead. Thank you guys, and I anticipate a response.
Jason,
You would need to post much more information before advice can be given.
Primarily the gross rent on each house and what repairs are needed.
I am also not too sure about this Hard money being Creative on a longterm loan. More like Crazy. Why do you want the high interest? Normally used for rehabs.
LOL
Crazy huh! OK
Here’s the info I have so far!
Quote from Seller’s ad
‘‘Just don’t have time to manage the properties and got great deals on all. I am willing to finance or carry down payment. All the triplex bring in at least 1600.00 dollars month and fourplex brings in around 2000.00 dollars. One triplex 65000.00 two triplex for 75000.00 each and fourplex for 75000.00. These are great deals and are firm prices for each. Each one of these should sale from 85000.00 to 110000.00 dollars. I have not list with agent as of now, so if you want a good deal here is your chance. I keep rented as quick as they come empty and rent by the week. Each unit will have a lease and I have total of 13 units if you want all.’’
SO I contacted the guy, had a conversation, and found from him that he is most interested in the property’s be well maintained, rather than the cash terms (of cours he’s interested in cash as well).
I went as far taking down his information, to call him back after my due diligience. All this I did today. Tomorrow i go look at the property’s to see them for myself and the rest follows.
I was just a step ahead, my credit is not the best and the requirements for commercial loans are strict. I’m trying to figure out the best option to control the proerty (when all checks out).
thanks guys!
I would stay away from hard money on a long term loan as the interest rates are way too high. You will be best off jumping through the required hoops for commercial loans and get 7%. They look at you with commercial but not quite so hard. Primarily their interest is the property.
I would be interested what types of terms the owner would give you on a few year loan with a balloon payment at the end. It will take you about 1 year to clear your credit up by techniques I posted here:
http://www.reiclub.com/forums/index.php/topic,43162.0.html
You then will have the credit needed to buy the houses with a conventional commercial loan which lately lasts only 5 years but is based on 15.
13 Units cash flowing at $61 per unit per month
Gross Income: $6,800/mth = $81,600 annual
Expenses (50% rule of thumb) -40,800
NOI: $40,800
290k@7%/15yrs: $31,279 (banks will only loan 15yrs on commercial right now)
Yearly Cash Flow $9,521
$9,521 divided by 12 months = $793 divided by 13 units = $61 dollars per door per month.
Not enough for me and this is based on the assumption that there is not one single repair needed.
I know he said that he is FIRM on the pricing but I would figure out the cost of repairs, add that to the purchase price and run the numbers again so it equals $100 per door and give him that offer.
You then can negotiate with him to pay more for it if you are willing to get less cash flow.
There is no seasoning on commercial loans so it might be possible to get the HM loan and immediately begin working on your credit so in a few months you will be able to roll the HM loan into a commercial loan and take advantage of the equity.
Also, many of the commercial lenders here in Texas will do a 5 year balloon on a 20 year amortization. If you were able to secure a 20 year loan based on all the same numbers Hooch posted it would give you a monthly income of $113 per unit.
jason,
What is that “RENT BY THE WEEK” that the owner told you about?
That’s a huge red flag–is he running some kind of boarding house or flop house? You’d better get some info. on the leases and make any offer conditional on approving all leases. Something doesn’t seem quite right here.
Furnishedowner