Hello, I am new to the board and have managed to purchase a small multifamily (over 4 units) that needs a gut rehab. So.... now that I already am in the situations, I am wondering how I can estimate what the overall rehab costs will be and how to go about obtaining a rehab loan or some kind of financing. On that ends, how do I evaluate mortgage lenders and deals? I do not want a hard money loan where I am paying exorbitant points and interest rates. What are my options?
ETA: I do not have a mortgage on the property and I understand that a hard money loan for rehab may be my only option, so I have not excluded hard money loans from my consideration. I am not a flipper and, as a result, have done some preliminary calcs but I am not familiar with all of the analysis that I should employ. Any help at all would be greatly appreciated!
I would focus on refinancing the property for the money with a commercial loan. I would contact Wesley here on the forum. He's a moderator and does commercial loans, and I'm sure he could point you in the right direction for the financing.
On rehab projects for multidwellings I always focus on getting units rented as quickly as possible to minimize my losses. I pick the units that need the least amount of work and focus on getting those ready and rented. After the initial easy units, I focus on the curb appeal, and I finish up with the problem units. Initially I keep my rents low, and I will rent the units to anyone who has the money, but as the project progress I get pickier and pickier. Once its done and rented then I focus on increasing the rents and the clientele.
I must thank you for your suggestions. They certainly sound reasonably but the whole prospect seemed daunting while I was planning out the intermediate steps. To my inexperienced eyes, it appears to me that many of the apartments need serious work, primarily due to poor upkeep by the prior landlord and intentional damage created by hostile tenants.
Now, from reading the boards for the past few days, I realize that many of you probably are *tsk* *tsk*ing me about taking on such a complex project for my first investment purchase but I purchased the property along with several relatives who implied that they were experienced investors due to their longstanding ownership of single-family houses. WELL, as many of you probably are aware, owning a multifamily unit is nothing like owning a regular house due to the costs, competing interests, planning problems, and additional layers of regulation. And so, those relatives have left me holding the bag to stress about the problems.
But I do thank you you for your input and I will attempt to teach myself about this situation.
Alot depends on the split. If I'm financing with a relative or partner I expect to collaborate but have them do alot of the day to day that is necessary to keeping these multiunit properties above water. If it's an equal split...one of us will take care of it and all share in the duties equally. No sense in one being worked to death and all taking the expense write offs at tax season.
Rehabbing a multi-dwelling has some major differences than a single family. Mainly because your mortgage is so much higher, your time frame on completion is so much more crucial. It can be very overwhelming, but focus on one step at a time. Its the eating an elephant analogy. You do it one bite at a time.
If you don't have experience in general rehabbing and you don't have the support from your family then you will need to step up to the plate quickly. Getting some of those units rent ready and rented as soon as possible will be crucial to how much money you will make/lose on this project. I would determine my break even point with how many units that need to be rented and shoot for that as soon as possible. You must stop the bleeding as soon as possible. Its good that you don't have a loan on it, but taxes and insurance can still eat away at your profits, and if and when you do get a loan for the repairs the clock starts clicking that much faster.
Multi-dwelling rehabs have tremendous potential for profit and also tremendous potential for loss. The stakes are higher, but so are the rewards.
Just sold a triplex that I had for 7 years. Same tenants were there for the entire period. Added central heat and air/vinyl siding (2650 sq. ft. building)
etc. but basically didn't have the apartments vacant to do much remodeling. What I had was Location and that made the difference. The new investor had ideas about increasing the rents on these three tenants but 8 monhs down the road he turned the building over to a low fee property manager and just wants to keep rents the same and limp along with changing filters etc. In other words, no great changes. Because of square footage the appreciation rate in this building will make him a decent profit due to stable tenants and a no frills approach. They'll be there for years to come and he can sell it again with those same tenants in there.. or rehab a unit for himself and live there free.