San Diego, CA · Member since 2018 · 23 posts · 4 votes
In Killeen, TX there is an apartment complex for sell at $285,000 currently. I'm looking for any help to find a way to potentially fund this and any opinions about whether the deal is any good. After running my numbers it looks like a great opportunity if I could find a way to fund it.
The property is two buildings with total units:
4 - 2bed/2bath --- which according to rentometer could rent at $550, so I assumed $500
10 - 1bed/1bath --- which according to rentometer could rent at $440 so I assumed $400
Total income - $6,000
Total PITI comes to about $1,800
And after assuming even $2,000 a month of expenses ... that leaves $2,200 in cashflow.
Any help on this would be greatly appreciated. I am new to investing and have been trying to get involved for about 6 months.
Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
8y
Two different questions. To fund, go to a local bank. They'll do 80%. You need $57k (+ some for closing, but then you'll get credit for property tax and rent prorate + SD). If you don't have the $57k, go the F&F rout, then local REI groups, then HML in that order.
In terms of if it makes sense, yes. That's easy. $6k rents for under $300k is a slam dunk. Buy it.
Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
8y
Two different questions. To fund, go to a local bank. They'll do 80%. You need $57k (+ some for closing, but then you'll get credit for property tax and rent prorate + SD). If you don't have the $57k, go the F&F rout, then local REI groups, then HML in that order.
In terms of if it makes sense, yes. That's easy. $6k rents for under $300k is a slam dunk. Buy it.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
8y
$2000 a month in expenses is probably low. Even so, looks like a good deal from rent vs. price.
Is it occupied? If not, you'll have a significant lease up period. You need to account for the lost rent during this period. If it is occupied you need to use current rent data.
Does it need any rehab? If its not occupied, it probably does. Even if it is occupied it will probably need work.
This is something of a no-mans land for lending. Too small to be of interest to a big commercial lender. Too many units for any sort of conventional financing. So talk to small local banks and credit unions. It won't be 30 year fixed financing, if that's what you're assuming. Maybe 15 or 20 year fixed and fully amortized, though that will command a higher interest rate. More likely a balloon or ARM loan.
San Diego, CA · Member since 2018 · 23 posts · 4 votes
8y
Hi @Jon Holdman. Thanks for the info. So you would expect the expenses to be higher than $2k for this type of unit?
I'm looking into current rent data and occupy vs unoccupied amounts now. But with a small local bank would the typical expectation be 25% down for this type property?
Would an ARM loan still leave this as good investment in your opinion?
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
8y
F&F = friends and family.
Lending terms for this sort of loan vary a lot. Based on some investigation I did a while back I'd think you could find 20% down. Your payment is going to be determined by the loan amount, interest rate and amortization period. The longer the amortization period, the lower the payment. The lower the payment the better your cash flow. Freddie Mac offers "small balance" loans that have good terms, but the minimum loan amount is $1 million. Your best bet would be to start calling local banks and credit unions and find some that will do this loan in your area.
An ARM leaves you vulnerable to future rate hikes that may hurt your cash flow. Balloons are also common for this sort of loan. Such as "20 year amortization, due in 5 years" loan. That means the payment is calculated as if this was a 20 year loan. But, after 5 years you have to pay the full remaining balance. At that time you would need to refinance, get the current lender to extend the loan or sell.
I'd expect expenses to be more like $3000 /month, knowing nothing more than what you wrote. That's based on the "50% rule" which says that 50% of gross market rents will go to expenses, capital (e.g., roofs), and vacancy. That rule is derived from large amounts of apartment data, so is applicable to your deal. There may be factors, such as deferred maintenance, that would make it larger. Risky to assume expenses will be much less, though they may be in some years. Its just a rule of thumb, though. You should be the APOD (annual property operating data) for this property from the seller or their broker and see what its really been recently. Take care, though. If its a lot lower that may mean the seller has been milking the property and you will have a lot of work to do. If its high there may be an opportunity to improve the property by reducing expenses.
Investor · Cedar Park, TX · Member since 2016 · 463 posts · 177 votes
8y
Before you get to down the road on financing. Have talked to local property Managment in the area? Talked to other investors in that market that own apartments? Try to talk to someone that has done this before in that market if you can. That is crazy low rent for Killeen. You might be chasing that rent money.
San Diego, CA · Member since 2018 · 23 posts · 4 votes
8y
@Michael Mullins I haven't looked at apartments prior to this and was using this platform to attempt to hear from local investors or anyone with knowledge of apartment investing.
And are you saying it may be a bad neighborhood and would potentially have trouble getting the rent checks?
Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
8y
So my guess is it is outside the east gate off Rancier ? 1 bedrooms in bad areas of Killeen(or bad areas anywhere) are a nightmare. Constant turnover and door knocking for rent as well as low occupancy. Been there and done that
If you are local and can self manage you can possibly make a go of it. It will be more work than investment. A property manager will not solve these problems
Yes, I like to find out what the average rent is in a area and try to be at that or that plus $200. Because the lower rent you go the harder it is to find a great renter. Try to find a property manager in that area or talk to @Bryan Adams. He has a wealth of knowledge in the Killeen market for multi family property’s.
Wholesaler · Tacoma, WA · Member since 2016 · 10 posts · 5 votes
8y
Hello Michael!
Have you researched the area this complex is in to see if this would be a good deal. Anywhere in Killeen NORTH of I-14/US-190 could be sketchy...refer to the post above about the area off Rancier.
Investor · Round Rock, TX · Member since 2017 · 24 posts · 18 votes
8y
I agree with the information above. Anything above 190 is not something I am personally comfortable with. Basically if the zip code ends in a 1 or 3 I typically don't look. But I want to point out this is my preference and I know investors still buy in those areas.
I will tell you that I am also a newer investor who owns 1 quad in Killeen and now a duplex in copperas cove. My wife and I self manage mainly because the nature of the market has a lot of rentals which means lots of management companies managing lots of properties. From experience the market is probably more labor intensive than most but we knew that going in.
Rental Property Investor · San Angelo, TX · Member since 2017 · 113 posts · 60 votes
8y
Great post Aaron, I am a local SFR/Small Multifamily investor in San Angelo, Texas. I want to make the transition to larger multifamily such as 16+ unit properties.
The numbers you provided seem great like the others have already said, but yes does not seem to be accurate. How are you calculating the expenses? That is what seems to be too good to be true at this point.
Residential Real Estate Agent · Dallas, TX · Member since 2013 · 232 posts · 173 votes
8y
@Pete Harper - Harker Heights is pretty much good to go anywhere. It has some older areas, but nowhere I wouldn't be happy owning a multi-family for the right price and condition.
London, United Kingdom · Member since 2016 · 19 posts · 5 votes
8y
@Cody L.
So I'm a total newbie and non-American. So for my education to finance a commercial property like this, are your suggesting all he needs to push through this deal is 57k +closing?
I'm assuming as it's a commercial loan, debt service cover ratio would be used to determine if the PITI can be made based on the current gross rents.
Would a lender still not require some amount of reserves?
What other requirements may the lender impose?
I've seen you mention in another post it was far easier for you to financing a commercial deal than a small multifamily, hence the questions.
So I'm a total newbie and non-American. So for my education to finance a commercial property like this, are your suggesting all he needs to push through this deal is 57k +closing?
I'm assuming as it's a commercial loan, debt service cover ratio would be used to determine if the PITI can be made based on the current gross rents.
Would a lender still not require some amount of reserves?
What other requirements may the lender impose?
I've seen you mention in another post it was far easier for you to financing a commercial deal than a small multifamily, hence the questions.
All lenders are different. Some lenders are different from deal to deal. I had to setup 12 month reserves on a property before because it was sketch as hell. After a year I asked my banker to release my collateral account and she did. Other times some has been reserved until xyz of upgrades were finished (like when I buy a building with no roof -- seriously)
The reason I like commercial banking and 5+ properties is it's more relationship based. If I happened to know the banker at Quicken Loans. And he knows my loan is a slam dunk and knows there is no way I wouldn't pay it back, it doesn't matter at all. They put your tax returns and credit into their system, it says 'yes' or 'no'.
With local banks on commercial deals it's relationship based. Make your case, show them why it's a good deal and you're a good borrower, and you can get the deal. When I was starting out I had my little power point, I'd setup meetings with banks, show them about me, etc. It was just after 2008 so I got real used to rejections. But now I have a few banks I have a great relationship with and I can get anything financed.
Same goes for anyone else. Treat dealing with a local bank like a job interview for a position you really want.
Investor · Dallas, TX · Member since 2016 · 20 posts · 1 vote
8y
@Aaron Gilmore
I love properties like this. FWIW, I usually assume $100-150 per unit per month for repairs on the more challenging properties. As for taxes, look at the millage rate for the property and assume your taxes get reset to 100% of your purchase price. It blows my mind that people dont assume a tax reset in Texas.
I would think insurance might be $3-4k per year, but defer to others.
I’d probably also assume 8-10% management fee and 8-10% vacancy.