Opportunity to make deal on five apartments

Opportunity to make deal on five apartments

Eau Claire, WI · Member since 2017 · 39 posts · 3 votes

After years of doing my own remodeling and hiring myself out and recently inheriting about $100,000, I have decided to dive into real estate to put both skills and money to good use.  

In my initial search I have found a package deal of five properties being sold by the existing property manager and owner. The properties have a track record of full tenancy for years going back, and the asking price for the five properties is $443,000, monthly rents are $5,745, totaling $68,940 per year. Assuming I put down 20% / $88,600 I would potentially be looking at a PITI of $2138 per month (according to various mortgage calculators), and factor in 6% / ~$350 property management fees per month, 5% / ~$290 savings for repairs per month, 8.3% / ~$475 for vacancy savings per month, and 7% / ~$400 CapEx savings per month I come up with about $3650 in expenses. This would give about $2095 in gross income per month.

My fear is that I won't qualify for a traditional mortgage considering it is a group of properties, so I imagine I would need to find an alternate funding source like cix.

My question, does this look like a good deal to go all in on for a first shot at becoming a real estate investor?  

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Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
9y

@Michael Andrews I'm a little confused, you say that it's "five apartments" but also that it's "five properties" so are these five condos?  A five-plex?  Five single family homes?  A duplex and a triplex?  Depending on what they are will help you understand what kind of financing that you need.    

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  • Investor · Away · Member since 2017 · 167 posts · 131 votes
    9y

    Did they agree to managing the properties as a group for 6%? That seems low to me but there are commercial loans available for situations like this. It is also possible, if they own them, that they could do seller financing. Worse case is you would have to buy each property on a separate mortgage if they qualify but your closing costs and fees would jump pretty high for that. 

    My quick math would suggest something like 2500/mo in expenses (50% rule) before the mortgage on this one but without firm details on the ages and condition of the properties in question it is hard to run the numbers down in a specific way.

  • Eau Claire, WI · Member since 2017 · 39 posts · 3 votes
    9y

    @Zachary Buffin - The 6% is coming from a local property management company that I would use as I have no desire to do it myself.  I would act as the maintenance and repair person.

    As for the numbers, I got them from a biggerpockets article https://www.biggerpockets.com/renewsblog/2014/12/02/rental-property-expenses/.  The tenants in these properties pay all utilities, so that does not factor into my calculations for expenses.

  • Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
    9y

    @Michael Andrews I'm a little confused, you say that it's "five apartments" but also that it's "five properties" so are these five condos?  A five-plex?  Five single family homes?  A duplex and a triplex?  Depending on what they are will help you understand what kind of financing that you need.    

  • Eau Claire, WI · Member since 2017 · 39 posts · 3 votes
    9y

    Apologies for the confusion.  This is five separate properties, each of which has two rented apartments.

  • Boston, MA · Member since 2017 · 209 posts · 126 votes
    9y

    So 5 properties, 10 units, and when you say $2,095 in gross profits, do you mean net profits? I just assumed a typo but I was not sure. Any upside or room to increase rent? Either way it looks like a pretty great deal if you are just looking at the numbers.

    You should be able to get a commercial loan, if they are packaged as a portfolio.  Check with some of your local banks, the smaller regional banks are the best place to start.  From there you would move to mortgage brokers or alternate sources.  

  • Eau Claire, WI · Member since 2017 · 39 posts · 3 votes
    9y

    @Jarrod Kohl - Yes I meant net profits after expenses, assuming I calculated them correctly and liberally.  I just applied through cix and immediately received an offer for $350,000 with 20% down, 2 points and 10% interest.  This seems pretty high to me, so I will start with my local credit union and work up from there.

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