Author Topic: Getting started  (Read 982 times)

hjon71

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Getting started
« on: June 02, 2018, 09:01:31 AM »
I have stumbled upon an opportunity but have no idea how to proceed.

An older couple have a duplex complex.
10 duplexes/20 units
Location is rural small town. Low crime area.

Each unit is 2br/1b and rent for $500/month. So 10x2x500=$10,000/month
Assuming the 50%rule, It should be cash flow positive to the tune of $60k/year!?!

They are ready to retire and want to sell.
I don't think owner financing is an option from our initial talk.
Cost $500k

My problem? My credit stinks and I only have $30k for a down payment. So help me figure out how to make this work. Please.


« Last Edit: June 02, 2018, 06:18:04 PM by hjon71 »

sammybiker

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Re: Getting started
« Reply #1 on: June 02, 2018, 09:49:27 AM »
After debt service, it doesn't look like much cashflow unless you have room to move up rents massively.

If you're moving forward with this, start talking to commercial lenders that may be able to pull all of these units into a portfolio loan (one big loan) and will be more lenient on credit scores. I'd call all of your local credit unions and ask to speak with their commercial lender. Start taking notes on what they require.

And then start reaching out to friends and family to pull some funding in for the down payment as $30k won't get you far.

You can also look into owner financing, see if this couple will finance to you - but again, the numbers really don't look all that great and I doubt it would be worth it after financing is considered.

Realistically, it may be best to use this as a demo deal while you square up your personal finances.  Learn what you would need to take down this deal so when the next one comes along, you're ready.

tralfamadorian

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Re: Getting started
« Reply #2 on: June 02, 2018, 01:45:50 PM »
Have you called the local police station yet to ask what the crime is like at the complex? At 2x I suspect it may be a bad neighborhood and more trouble to manage then you realize.

Also, ask the owners for the 2017 P&L. And do you know of any deferred maintenance? At only $500/mo each, it would take a long time to pay off a bunch of new roofs and HVAC units.

hjon71

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Re: Getting started
« Reply #3 on: June 02, 2018, 06:01:19 PM »
I'll edit original post as helpful info. warrants.

Question:
Doesn't the 50%rule include debt servicing?

I didn't think about delayed maintenance being an issue, but I definitely see how it can be now.

Thanks for the portfolio loan mention. I do prefer to deal with Credit Unions over banks, but my current CU doesn't offer commercial loans. There are others close I will explore though.
« Last Edit: June 02, 2018, 06:20:50 PM by hjon71 »

sammybiker

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Re: Getting started
« Reply #4 on: June 03, 2018, 08:30:34 AM »
50% rule is a rule of thumb that covers all expenses except for financing.

I'll edit original post as helpful info. warrants.

Question:
Doesn't the 50%rule include debt servicing?

I didn't think about delayed maintenance being an issue, but I definitely see how it can be now.

Thanks for the portfolio loan mention. I do prefer to deal with Credit Unions over banks, but my current CU doesn't offer commercial loans. There are others close I will explore though.

TheOnlyJustin

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Re: Getting started
« Reply #5 on: June 26, 2018, 11:41:52 AM »
I have stumbled upon an opportunity but have no idea how to proceed.

An older couple have a duplex complex.
10 duplexes/20 units
Location is rural small town. Low crime area.

Each unit is 2br/1b and rent for $500/month. So 10x2x500=$10,000/month
Assuming the 50%rule, It should be cash flow positive to the tune of $60k/year!?!

They are ready to retire and want to sell.
I don't think owner financing is an option from our initial talk.
Cost $500k

My problem? My credit stinks and I only have $30k for a down payment. So help me figure out how to make this work. Please.

@hjon71:

Did anything come of this? Just curious... sounds like an overall good deal depending on deferred maintenance and repairs.

Michael in ABQ

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Re: Getting started
« Reply #6 on: June 26, 2018, 10:44:42 PM »
This is a small apartment complex for all intents and purposes. So a commercial lender would probably only go about 65-75% loan to value. Assume maximum leverage you would have to come up with $125k down payment. I don't know what the exact terms would be but I'll just throw out 5% interest and a 25 year amortization which would equate to annual debt service of $26,307. Assume operating expenses run 50% of effective gross income, your actual occupancy rate is 90%, and you have replacement reserves of $300 per unit per year. That comes out to net operating income of $20,693. That's a cash on cash return of 16.6% which is pretty good. But you might have deferred maintenance and operating expenses could be higher than 50%. Would you be the on-site manager or would you pay someone (possibly offer a tenant free/reduced rent on a unit)? Finding a management company in a small town might not be possible. Repairs and maintenance costs might be higher due to a lack of contractors. If your operating expenses ratio is 60% or 70% then this becomes a less desirable deal obviously.


You have three options:

Seller financing, perhaps only for a portion.

Find an investor to partner with, thus giving up a significant (likely controlling) chunk of equity.

Put it under contract with the right to assign the sale and flip the contract to an investor who can afford it. You might be able to get $5-10k for bringing an investor this deal, though there's not as many people who want to buy 20 units in a small town.
« Last Edit: June 26, 2018, 10:50:29 PM by Michael in ABQ »

marty998

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Re: Getting started
« Reply #7 on: June 27, 2018, 03:14:36 AM »
How experienced are you in realestate? Maybe start with one before diving into 20 units?

Having said that, for $500k I'd be lucky to buy just one 1 bedder here. 40 bedrooms would set me back an 8 figure sum :)


hjon71

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Re: Getting started
« Reply #8 on: July 01, 2018, 04:14:55 AM »


Quote

@hjon71:

Did anything come of this? Just curious... sounds like an overall good deal depending on deferred maintenance and repairs.

I haven't given it any more thought after the first couple responses.
I have zero experience in this field so I'm really out of my element here. LoL
I've been in a couple of the units because I have friends who live there. No apparent maintenance issues but I don't know much overall.




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hjon71

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Re: Getting started
« Reply #9 on: July 01, 2018, 04:16:13 AM »
For reference I could buy a decent 2br1b house for $30-40k

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