6 unit multi family cash cow

[DeAndre Mason]

Hey BP, 

So i have found a property that is 6 units with each unit being an "efficiency", besides one unit being a 1 bedroom. The list price is under 200k and rent revenue seems to be at LEAST $2150 a month on an $1100 mortgage. Tenants will most likely pay all utilities minus water and sewer ($100/month). Would be using a property manager (220/month) which would bring cash flow roughly to $800 starting out. Now, financing is my biggest concern. I do not have the capital to put 20% down. However, how can I go about getting private money to pay for the down payment and then cash out refinance in 6 months to pay the lender back and have enough equity to now put down enough capital myself on another property? I understand I would have to get a commercial loan so how would that work with a refinance?? The property is also turn-key and was completely gutted to studs and rebuilt about 5-6 years ago. 

I understand this may be hard to follow so let me know if I need to explain further.

[Bob Stevens]

Quote from @DeAndre Mason:

Hey BP, 

So i have found a property that is 6 units with each unit being an "efficiency", besides one unit being a 1 bedroom. The list price is under 200k and rent revenue seems to be at LEAST $2150 a month on an $1100 mortgage. Tenants will most likely pay all utilities minus water and sewer ($100/month). Would be using a property manager (220/month) which would bring cash flow roughly to $800 starting out. Now, financing is my biggest concern. I do not have the capital to put 20% down. However, how can I go about getting private money to pay for the down payment and then cash out refinance in 6 months to pay the lender back and have enough equity to now put down enough capital myself on another property? I understand I would have to get a commercial loan so how would that work with a refinance?? The property is also turn-key and was completely gutted to studs and rebuilt about 5-6 years ago. 

I understand this may be hard to follow so let me know if I need to explain further.

 Is this 2100 gross on 6 units? That only 350 per unit ?  $10k a year net on 200k  thats  only 5% ?  Also what about garbage, Yard care/ snow ?  Be careful, the rent indicates not a good area. 

[Chris Davidson]

@DeAndre Mason where is this? You will also have to find out if it conforming or not. Always worried when efficiency is used right after a remodel and deal seem a little too good. Is it zoned for 6 units? I don't know where 350/month rent gets any tenants where you won't be having rent loss issues. However if all those numbers are true and the deal use the network tab up at the top and start searching. Or reach out to a PM or agent and ask who they use or see being used.

[Henry Lazerow]

So $350 a unit? Cap/ex and management costs will destroy that low of rents. Unless can bump these up to $500+ pass

[Jacob St. Martin]

Hello DeAndre, I would like to echo the sentiment that the other people here have discussed as well as add something. First, if you want to use private money to finance the down payment on a turnkey rental, you will not be able to refinance out of that private money. When you go to refi the bank is still going to want 20% LTV (however you could get as low as 15% with a DSCR lender). Because you are not going to be adding value through rehab or increasing the net operating income you will not be able to pull out any of that private money to pay off your private lender. Additionally, some lenders for your primary mortgage will not lend to you if you are also financing the down payment. Lastly, most private money lenders are not going to want to go to 100% LTV. This is because they are in a second position mortgage. If you default you primary loan gets paid off first then the secondary loan. If they go the 100% LTV suddenly the value of this property drops 5% now they lose money if you default. This is why banks don't lend 100% LTV. If you want someone to do the second position loan for you it will probably need to be someone who knows you personally and trusts you a lot. If you can't figure out the financing but know it is a great deal you should wholesale it. This will give you some capital so that hopefully when the next deal comes around you will be able to afford the down payment. Let me know if you have any other questions!

[DeAndre Mason]

Quote from @Bob Stevens:

Quote from @DeAndre Mason:

Hey BP, 

So i have found a property that is 6 units with each unit being an "efficiency", besides one unit being a 1 bedroom. The list price is under 200k and rent revenue seems to be at LEAST $2150 a month on an $1100 mortgage. Tenants will most likely pay all utilities minus water and sewer ($100/month). Would be using a property manager (220/month) which would bring cash flow roughly to $800 starting out. Now, financing is my biggest concern. I do not have the capital to put 20% down. However, how can I go about getting private money to pay for the down payment and then cash out refinance in 6 months to pay the lender back and have enough equity to now put down enough capital myself on another property? I understand I would have to get a commercial loan so how would that work with a refinance?? The property is also turn-key and was completely gutted to studs and rebuilt about 5-6 years ago. 

I understand this may be hard to follow so let me know if I need to explain further.

 Is this 2100 gross on 6 units? That only 350 per unit ?  $10k a year net on 200k  thats  only 5% ?  Also what about garbage, Yard care/ snow ?  Be careful, the rent indicates not a good area. 

 Probably more like $2400 i was just going on lower end. Some of the units had been previously rented for 375 though.

[Bob Stevens]

Quote from @DeAndre Mason:

Quote from @Bob Stevens:

Quote from @DeAndre Mason:

Hey BP, 

So i have found a property that is 6 units with each unit being an "efficiency", besides one unit being a 1 bedroom. The list price is under 200k and rent revenue seems to be at LEAST $2150 a month on an $1100 mortgage. Tenants will most likely pay all utilities minus water and sewer ($100/month). Would be using a property manager (220/month) which would bring cash flow roughly to $800 starting out. Now, financing is my biggest concern. I do not have the capital to put 20% down. However, how can I go about getting private money to pay for the down payment and then cash out refinance in 6 months to pay the lender back and have enough equity to now put down enough capital myself on another property? I understand I would have to get a commercial loan so how would that work with a refinance?? The property is also turn-key and was completely gutted to studs and rebuilt about 5-6 years ago. 

I understand this may be hard to follow so let me know if I need to explain further.

 Is this 2100 gross on 6 units? That only 350 per unit ?  $10k a year net on 200k  thats  only 5% ?  Also what about garbage, Yard care/ snow ?  Be careful, the rent indicates not a good area. 

 Probably more like $2400 i was just going on lower end. Some of the units had been previously rented for 375 though.

 Still very low, how is this a cash cow? Its about 5% net cap based on cash purchase.   I guess I really am spoiled. Sir you can do much better than that in other markets, this is not a good deal. 

All the best 

[Bob Stevens]

Quote from @Chris Davidson:

@DeAndre Mason where is this? You will also have to find out if it conforming or not. Always worried when efficiency is used right after a remodel and deal seem a little too good. Is it zoned for 6 units? I don't know where 350/month rent gets any tenants where you won't be having rent loss issues. However if all those numbers are true and the deal use the network tab up at the top and start searching. Or reach out to a PM or agent and ask who they use or see being used.

 This must be a VERY rural area, as in the worst areas in OH we get 700- 800 for 1 brs  this is not a good deal , I wish him well. 

[DeAndre Mason]

Quote from @Jacob St. Martin:

Hello DeAndre, I would like to echo the sentiment that the other people here have discussed as well as add something. First, if you want to use private money to finance the down payment on a turnkey rental, you will not be able to refinance out of that private money. When you go to refi the bank is still going to want 20% LTV (however you could get as low as 15% with a DSCR lender). Because you are not going to be adding value through rehab or increasing the net operating income you will not be able to pull out any of that private money to pay off your private lender. Additionally, some lenders for your primary mortgage will not lend to you if you are also financing the down payment. Lastly, most private money lenders are not going to want to go to 100% LTV. This is because they are in a second position mortgage. If you default you primary loan gets paid off first then the secondary loan. If they go the 100% LTV suddenly the value of this property drops 5% now they lose money if you default. This is why banks don't lend 100% LTV. If you want someone to do the second position loan for you it will probably need to be someone who knows you personally and trusts you a lot. If you can't figure out the financing but know it is a great deal you should wholesale it. This will give you some capital so that hopefully when the next deal comes around you will be able to afford the down payment. Let me know if you have any other questions!

How can you wholesale if its listed with an agent? I know there's LLC transfers but not sure if its allowed in West Virginia.

[Jacob St. Martin]

You can wholesale properties listed on the MLS, it is just a less common practice! You would reach out to the sellers agent and submit a purchase and sale agreement kinda like you would with a normal property. Be up front with the listing agent about what you want to do. You will include a clause in the purchase and sale agreement that allows you to assign the contract. From there it is a normal wholesale.

[DeAndre Mason]

Quote from @Bob Stevens:

Quote from @Chris Davidson:

@DeAndre Mason where is this? You will also have to find out if it conforming or not. Always worried when efficiency is used right after a remodel and deal seem a little too good. Is it zoned for 6 units? I don't know where 350/month rent gets any tenants where you won't be having rent loss issues. However if all those numbers are true and the deal use the network tab up at the top and start searching. Or reach out to a PM or agent and ask who they use or see being used.

 This must be a VERY rural area, as in the worst areas in OH we get 700- 800 for 1 brs  this is not a good deal , I wish him well. 

It’s a D1 college town actually. It’s just that the units are tiny, however it could be very possible to raise rents to $500. On the other hand, on a cash purchase the ROI would be a 15% cash on cash return based on a $2400 monthly gross rent 

[Bob Stevens]

Quote from @DeAndre Mason:

Quote from @Bob Stevens:

Quote from @Chris Davidson:

@DeAndre Mason where is this? You will also have to find out if it conforming or not. Always worried when efficiency is used right after a remodel and deal seem a little too good. Is it zoned for 6 units? I don't know where 350/month rent gets any tenants where you won't be having rent loss issues. However if all those numbers are true and the deal use the network tab up at the top and start searching. Or reach out to a PM or agent and ask who they use or see being used.

 This must be a VERY rural area, as in the worst areas in OH we get 700- 800 for 1 brs  this is not a good deal , I wish him well. 

It’s a D1 college town actually. It’s just that the units are tiny, however it could be very possible to raise rents to $500. On the other hand, on a cash purchase the ROI would be a 15% cash on cash return based on a $2400 monthly gross rent 

 No that would be gross, ( nobody cares about gross :) )  it is not a good deal unless you get it for about 140k,,,, 

All the best