Im a newbie trying pull the trigger on this 14 unit building.

[Rolando J. Pena]

Good Evening BP!

I have heard many podcast on my way to work, but I finally started hanging out here in the forum. I must say that this forum is amazing!

Im currently under contract on a 14 unit apartment building in South Texas (RGV), and I would like to know if you guys think I'm buying it the right way.

- Turn key 

- built in 1996

- I have it under contract for 485,000 with the seller paying 10,000 for closing costs.

- 14 unit monthly income 7,000 (all leased)

- laundry  monthly income 500.00

- purchase cap rate 12.86% ( used bigger pockets calculator)

- ANALYSIS IMAGE IS ATTACHED

- Property management is only 5% because it is a family member that is going to help me

- Water and electricity expenses are only for laundromat, every unit has separate meters.

- It is located in a town of 11,425 population but according to the past records it hardly has any vacancies.

The property itself is not what scares me, what does is actually my inexperience in multifamily and the creative financing I'm going to use. I'm putting a four-plex that i bought for 100k(cash), as a collateral to get the 14 units financed 100 percent. My bank got me approved for WSJP+2.00 (7.50% fixed) for 3 years, rate adjusting every 3 years to the current WSJP plus 2%. The seller agreed to pay 10,000 towards closing cost, so i should not have to take any money to the closing table.(unless I'm missing something). My realtor is giving me half of his commission, so i might end up with money out of the deal. I also plan to close towards the end of the month to also get all of the profit the first weeks.

My four-plex is cash flowing around 1,400 a month plus the 14 units would be cash flowing around 1,362.51 they add up to=2,763.51

So is my cash on cash 33%, because I'm basically getting 2 deals for paying one cash?

Is it a smart idea to use another investment property as a collateral?

Do you guys think my interest rates are high?

I don't have anybody that I know that invests in Multi-family or single family and I have owned that four flex for like 6 months, that is why i decided to reach out to you guys for guidance.

[John Warren]

@Rolando J. Pena the only thing I don't personally like about this deal is the rent amounts. I have purchased buildings of this size (19 unit, 20 unit), and in my experience the better areas tend to have rents more in the 800-1200 range. My least favorite property has rents in the $500 per month range, and it is a C-/D+ class property. The vacancy is high (10-20% depending on any given month), the repairs are higher as a percentage of rents, and the units turn over frequently. I can contrast this with my buildings in Berwyn and Lyons, IL, which are much better areas. Vacancy is under 5%, repairs are low, and units rarely turn over. 

Whatever you decide to do, make sure you have adequate cash reserves. Once you jump into this commercial space, you will need more money than you think in your reserves and in your operating account. I noticed that you are really leveraging to get this property, which is great, but just make sure you will be able to operate the place with plenty of cash. 

Lastly, make sure you have spoken to three or four local property management companies. Managing a C or D class building is not always simple, and if your family member decides to bail at some point you need to have the relationships built with the professional companies. Management is where your profits will be made after you purchase this property.