seller financing + hard money DP. Is it doable for apartment complex?
I have some questions about apartment complex deals
1) Are large apartment complex NOT following 50% rule?
2) Is it possible to combine seller financing with hard money DP for infinite COC return?
3) If there is X yr ballon term, is refinancing the only option at the end of X yr without selling and paying cash?
Here is one deal in Dallas to illustrate my points:
Loopnet ID: 15762709
# Price: $4,000,000
# No. Units: 163
# Building Size: 130,487 SF
# Price/Unit: $24,539.88
# Property Type: Multifamily
# Property Sub-type: Garden/Low-Rise
# Property Use Type: Investment
# Cap Rate: 11.10%
# Occupancy: 94%
# No. Stories: 2
# Year Built: 1981
# Lot Size: 8.08 AC
2009 Actual:
# Effective Gross Income: $1,163,301
# Operating Expenses: $719,266 (62% of gross income)
# Net Operating Income: $444,035
Finance: New 3rd party financing or seller financing with 20% DP
# Loan Amount: $3,200,000
# Interest Rate: 6%
# Amortized Over: 30
# Due In: 10
# Annual Debt Service: $230,220
# Down Payment: $800,000
Based on this loan term, cash on cash return = (444035-230220)/800000=26.7% Not bad!
Or, instead of putting down 800k by myself, obtain hard money 800k 15% for 10yrs. Deb service for this 800k is 800k*15%=120k
Is this a realistic hard money lending term?
Then, cash flow becomes 444035-230220-120000=93815 annual.
After 9 yrs, 93815*9=844335
This should be enough to refinance in 10th years as 20% down, even assuming no rent increase or appreciation in this 10 years.
Isn't this a wonderful deal by putting down nothing and gain an apartment complex in your investment portfolio for retirement?
In this particular deal, since the units can be sold as individual condo, the owner has more option at 10 yr point, right?
To further generalize this seranio, any property with >8% cap rate can self-sustain for 10 years with 80% financing at 7% plus 20% DP financing at 15% and allowing 10th yr refinancing. Cap rate needs to be 11.45% if it is 7 yr balloon term.
Assuming all the numbers are real after due diligence, what do you expert think about my analysis/sceranios? Any flaw in the thinking process?