I would like to either have a coach or mentor to guide me through my first apartment deal. I have read the Bigger Pockets beginning real estate guide several times,and I have done research on financing and leaned the investment terms,but would feel more confident if someone could show me how to structure a deal soundly that will cash flow in an appropriate manner.
Josiah please be more descriptive on what you are trying to do. Do you have any money of your own to invest?? How much is it??
How many units are you trying to buy (deal size)??
I do not have personal money to invest at this time. The property that I am interested in purchasing is located in Vallejo, California. It has 26 units and 100% occupancy. It is 15,175 s.f., and it is a four story high rise. The reported cap rate is 6.10 %. The asking price is $1,888,888. The scheduled gross income is $235,380, the effective gross income is $220,956, the operating expenses are $105,356, and the net operating income is $115,6000. I am not certain about how to complete appropriate due diligence, nor how to find a private investor for a loan, and the other particulars involved in putting an offer/ deal together. Thank you for your pertinent questions Joel. I would appreciate any guidance you could offer.
sounds ambitious. you don't have any money for a down payment of some kind? what's your salary? have you owned real estate before?
You have no money to invest I don't see you doing a deal until you have at least 20% as down payment and most lenders want you to have a reserve just in case something needed to be repaired. Even if you do come up with the down payment the lenders will need to check your personal credit and income to see if you can make the payments.
We are getting much higher cap rates in Houston. Might make getting your first deal done easier if you find something with more cash flow to spread around.
However, if you are focused on this deal, assuming you are bankable, you could ask the seller to carry a second lien for 25% of the purchase and try to use that to eliminate the need for a down payment?
What kind of financing do you think you can get? If you financed 75% of the purchase for 30 years at 5% which would be great terms in my experience, P&I will be almost $100k a year. This place will barely cash flow after paying the note and that's assuming 25% down, not a second lien.
Thank you for your posts. Yes, I have owned real estate in the past. I had my personal residence, and two investment properties. That all dried up in '08 and my equity disappeared over night. Today, have credit scores above the 700 level. As for salary I will net about 72k. The information and insight that you have given is valuable. I have learned to walk away if a potential deal does not work for me.
to add to what @Mark Dykes said....
A Few Quick Calculations:
IF you were able to get 100% financing at 5% with 25 year amortization... its a loser at $17k per year negative cash flow.
If you were to finance 80% at 5% with 25 year amortization and put the down payment of $435k in cash it would only bring you a ~2% COCR or $8700/year after debt service. Also your DSCR in this scenario is only 1.08 and banks look for this to be 1.25 or higher.
It doesn't sound like a value play opportunity with low rents, high vacancy, etc. so I would look at the next property...
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