I know there are a number of variables but I’m a newbie and was just wondering what some of you would pay for an apartment complex on the river that stays 100% occupied? Current gross revenue is 12,000/month.
What kind of interest rate do you think I should get?
How can I come to closing without a significant downpayment?
You haven’t provided enough information for anyone to provide you conclusive advice, but in general:
What should I pay?
Without knowing the specifics on the apt building, location, rent and recent sales comparables, etc., it is difficult to provide an opinion on this. A quick and easy way to determine value of commercial property (I assuming that is a +5 unit apt complex) is by calculating its income capitalization. Estimated value can be derived by dividing NOI (net operating income) by the local capitalization rates. The formula is expressed as follows:
Value = NOI/Cap Rate
With a 12K monthly NOI and a suggested cap rate of 8%, the property would have an estimated value of 1.8 million (144K/.08).
What kind of interest rate could I get?
Without knowing the cash flow of property (NOI, DSCR, etc.), your intended down payment/final LTV (loan to value), etc., it is difficult to respond.
How can I come to closing without a significant downpayment?
There are commercial loans that allow for 90% financing (90 LTV) and 95% financing (95 CLTV with a seller second) that could mitigate your downpayment requirements to 5-10%.
Regards,
jtmoniii,
If you’re a newbie then I would pass on any commercial properties that bring in that much income ($12,000/month). Start with a few 1-4 unit properties, before you start buying a million dollar property.
Careful here, the $12k per month is the gross revenue not the NOI. You need to back off the operating expenses which some would say near 50% of gross rents.
As another side note be carefull of local cap rates. Local cap rates are derived from the market. When looking at purchasing commercial property you have to look at it as investment value. A cap rate is a way of deriving value by using a single period (1yr) and capitalizing it to a present value. I would learn about “band of investments” (with selling expences) to get your investment cap rate. Using a generaly derived rate from the market may not serve your needs. “Band of investments” takes into account cost of financing, equity return, selling expences and growth.
Get your self a good commercial broker on your side to aid you. Marcus & Millichap focuses solely on commercial investment real estate.
Good Luck