I am in negotiations with owners of an 18 unit building built in the mid 1970s that they have fixed up a lot (new roof, new cabinets, new windows, new flooring). I have reviewed the rent roll and expense statements and all looks good. The asking price is $936,000, but my goal is to get it under contract at about $850,000 (maybe $875,000). The owners want at least $100,000 down (they have a small mortgage left). The numbers are great (CoC 46%, Net Cash Flow about $46,000).
My question is this: how do I go about getting a money partner on this? What would the best way to structure this? I am able to offer about a 12% annual return for the partner. Is this too much? Not enough?
If you find a money partner how much of your cash are you bringing to the table.
Ditto to what Joe said, Sterling. But are you sure about that (COC) return? Sounds mighty high. Sure that's not your Net Operating Income? If it is COC, you might want to take another look and VERIFY that number. If that's true, why would they sell?
What's the story behind the sale? Why is the seller selling at this time? Problem? Life change (illness, death of a parent or spouse, retirement, etc.)?
Have you done a rent survey of the local market, i.e. nearby competing properties? Is the property operating at or below market occupancy levels? There can be an opportunity there and tremendous upside if it isn't and you can adjust your offer accordingly to compensate for that additional risk.
Is the mortgage that's left, assumable? Did you ask the seller whether they'd be open to doing seller financing? That would allow you to give them an income stream.
Another possibility you may want to look into is getting a bridge loan. Most of the time a commercial real estate bridge loan is nonrecourse, with LTV up to 65% or 75%, 6% to 9% interest rate, plus 1% orig fee on a 24 to 36 month repayment schedule. Obviously, a bridge loan is short-term financing. You have to know your exit strategy - resale or refinance in less than 3 years.
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