What would you do...?

23 Replies

So let me start off by saying I am still new to real estate investing so go easy on me, but not too easy (I'm still a man dammit!).

Let's say I found an 8-plex that has been without love for a few years Estimated 20k repairs (Brick, 10yr. old roof, 100% rented, gutters falling off, needs paint, shrubs grown up, etc., etc.) Each unit brings in $650 for a total of $5200/mo. Expenses include: Taxes $3000/yr., Insurance $400/mo (might be cheaper) Tenants pay utilities. 10%managment, 9% repairs/maintenance, 9% Capex, 5%vacancies.

Listed for 330K but I know I need to buy it for 228k.  Not a lot to put down and trying not to use all of my cash.

I know it's a solid deal and the numbers work in my favor but the question is,

How would YOU pay for this deal if it was YOU?

-Seller Financing?

-Partnership?

-Hard money?

-Private Money?

-Lease options?

AND GO!

I'm also a new upcoming investor & I'm also an agent. Based on what I have studied & learned I would decide to try a Partnership so I can start getting the experience. A partner preferably with experience with real estate investing so he/she can guide me to do the right things. I would make sure my partner is someone who has money but no time to analyze deals. 

@Jason Gott how much money do you have? If you can get the seller to sell for 100k less then they’re asking in this market hats off to you but I find that unlikely.

I would probably use private money but that’s going to be hard to do if you have no experience.

So if I’d used private money before I’d do that but if you haven’t, the likely best (read most likely option) would be for you to pass on this.

Use your own money/time/effort to do your own deals, on your own before partnering or using someone else’s money.

Start small and grow bigger over time. When I acquire my first property of this size people will look at me and say “how does a guy in his early thirties do that”

What they won’t know unless I tell them, is I’ll have been doing this for close to ten years by then and I doubt there won’t be much I haven’t seen by then.

Originally posted by @Caleb Heimsoth :

Jason Gott how much money do you have? If you can get the seller to sell for 100k less then they’re asking in this market hats off to you but I find that unlikely.

I would probably use private money but that’s going to be hard to do if you have no experience.

So if I’d used private money before I’d do that but if you haven’t, the likely best (read most likely option) would be for you to pass on this.

Use your own money/time/effort to do your own deals, on your own before partnering or using someone else’s money.

Start small and grow bigger over time. When I acquire my first property of this size people will look at me and say “how does a guy in his early thirties do that”

What they won’t know unless I tell them, is I’ll have been doing this for close to ten years by then and I doubt there won’t be much I haven’t seen by then.

Roughly 60K cash and I also have the option of a partner who can bring another 60K if needed. 

I would put in an offer and ask the seller if he would hold a note for 25% of the purchase price so it would make it easier for me to purchase while at the same time he would still receive monthly payments from the property without the headache of managing or owning it.  I'll make sure the full amount is paid back within 5-10 years or less depending on what he would prefer.  The bank would provide the other 75% so it would be a no money down deal....  if he says no, i would put the 25% down. 

Sounds good but I'm wondering about your 20k estimate for roofing, paint, gutters, and exterior.... 

Hey @Jason Gott !  Good work pursuing growth and understanding!

If I were looking at this same deal I would . . . 

. . . know that those repairs are going to run more than $20k in almost every case.  

. . . use an ARV (after repair value) based loan that can fund 75% of the appraised value after repairs are made. (available through several banks in my area, both mainstream and investor)

. . . if I could swing it myself, I'd fund it myself if I could get it at 75% of appraised value or less because I'd be "in" for $0!

So, if it would appraise at $330k (BIG difference between list price and appraised value, so don't be steered by the list price) and I could get it at 75% = $247,500 including closing costs and renovation costs, then if I could handle in the opinion of the lender I'm roll solo and sit pretty with my $5,200 in and $2,500 PITI payment estimated each month = net of $2,700!! This doesn't factor in management, maintenance, or vacancy so do your due diligence there, but I'd be tickled with these numbers.

Originally posted by @Will Fraser :

So, if it would appraise at $330k (BIG difference between list price and appraised value, so don't be steered by the list price) and I could get it at 75% = $247,500 including closing costs and renovation costs

I tend to forget to base deals off of ARV and not the list price. Thank you for helping me see this. Now this being a Commercial deal how would that work as far as bank financing? What you all are saying is have the seller pay the 25% Down, and I fund the rest? What are current commercial rates running around?

Again Thank you all for the replies, they are all very helpful.  Yes the repairs are again just an estimate I haven't even walked through the property yet and plan on having a contractor or two with me when I do.  This would be my first ever commercial deal, I'm excited and also nervous as crap! 

Pulling this from JScotts book: 

Max Purchase Price = Sales Price - Fixed Costs - Profit - Rehab Costs

In this case 'Sales Price' is your best estimate at what you'll appraise at after repairs. 'Fixed Costs' are fees, commissions, and don't forget holding costs (taxes, utilities, etc.) while you do the repairs. 

You may need to fund the property up front with a partner or private money while you do the repairs. After you do the repairs you can cash out refinance. This refinance will be based on what you appraise at after the repairs are complete (75/25 or 70/30). You can get a lower interest rate and pay back your private lender or partners with the cash out. 

@Jason Gott Yessir!  If the After Repair Value (according to an appraisal) would be $330,000, then the lender I did my last deal with would loan up to 75% of that value.  I was able to fund my purchase, closing costs, and renovation costs into the loan and it was interest only during the renovation phase.  So, that'd put the max loan value at $247,500.  So, if you're closing costs were $6k and your rehab costs were $30k, then your "no cash left in the investment" purchase price would be $211,000 according to this type of loan.

Go get it bud!

@Will Fraser

That is "IF" I can get the sellers down to $211K.  But like other responses have been it's highly unlikely that the owners would drop that much.  I know the old saying of, "You don't know what the sellers are willing to do, all they can say is NO"

I would do some digging around first to understand the motivations for the seller to move such a cash cow. Just based on his asking price off the top of my head the cap rate is something like a 15. There's not too many places right now with decent MF at that kind of cap rate. Doesn't look right to me on paper just based on where the RE market is right now for most of the country. 

Originally posted by @Jason Gott :
Originally posted by @Niels Bjørn Toppenberg:

I ask because you wrote that is listed for 330k but you need to get it for 228k.
What did you mean by that?

"IF" I get the seller to that price.  With Seller financing 20% down and at 6%

 Do you think getting the seller to drop 30% is realistic and then on top of that getting them to agree to seller financing at 6%? Banks are lending at 5.5% in some cases for investment. Usually when people are asking for seller financing, they don't go that low on price and interest rate. In my mind making a 30% below asking offer, I would expect it to be a cash offer.

@Joe Splitrock

I think my plan of attack will be to offer low originally and if they do decline I will raise the price the ask for seller financing.  I also like the 70-75% Conventional to 25% seller or my DP/or both.  I am doing some more due diligence on the property to see if there is any unforeseen problems.  The property has been on the market for almost a year and it's owned by an older couple, so my guess is they are just wanting out of the game to retire somewhere warm. 

Originally posted by @Mike H. :

Sounds good but I'm wondering about your 20k estimate for roofing, paint, gutters, and exterior.... 

 I agree with Mike, I'm not sure the extent of the work but from what you describe it sounds like it will be more than 20k in repairs for an 8plex...