Motivated investor

6 Replies

Hi all, I am a novice but highly motivated to be an investor in apartment building -my spouse & me have some cash assets around half a million dollars - my question to all the experienced & senior members is if it is possible to buy an apartment building of more than 15- 20 units worth at least a million dollars as investment - We have no prior experience with real estate nor did I have had any mortgage , never bought any SFH - Only started reading more & more about real estate now - getting lot of knowledge from different forums here - will appreciate any help on how to proceed

Hi Jayant,

FIRST do not do anything hasty with your money.

It's not just about cash down but your net worth and liquidity. You determine this by filling out a financial statement showing all your assets and liabilities. This shows the strength of your balance sheet to a lender when looking at getting a loan.

Next you need to answer what are your expectations pre-tax for cash flow annually?? Is it 10%, 15,% 20% off your 500k cash investment??

It's easy to buy into a bad deal. It's HARD to get out of it. Multifamily might not even be right for you. Until you tell us more about what you are trying to do with investing it's difficult to comment further. 

For a million dollars, you should be able to find properties with more than 15-20 units (depending on the market of course). I personally would start out smaller, however and learn. But to each his own. I'm just now starting to think about larger sized apartment buildings after 10 years of owning 3 and 4 unit properties.

@Joel Owens Are there any rough guidelines as to what commercial lenders look for from borrowers in terms of net worth and liquidity? For example, if you purchase a property for $1,000,000 with $250,000, any idea what the guidelines would be. I've also heard that a primary residence does not count towards net worth in the eyes of most lenders. Do you know if that's usually the case? Thanks!

@George Fitz ,

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Raymond

@Raymond B.  

I think I may have run into a little BP glitch because I did that and Joel's name even was blue when I hit "Post." But thanks for the tip nonetheless as I didn't notice what happened.

@Joel Owens  I was curious if you could elaborate more on the net worth/liquidity requirements that commercial lenders may require? Thanks!

Hi George,

Liquid assets are generally things that can be converted to cash in a fast manner that a lender would count.

So you have your checking account, savings account, stocks, etc.

Your home residence can still count toward net worth but many times buyers inflate the value of their property and what they think it's worth. So for instance a buyer says their home is worth 1 million and they owe 400,000 on it. If you pull 75% percent out for cash  the buyer is thinking about 350k can be pulled out.

You find out that with appraisal the house is only worth 800k and you can pull about 200,000 for a difference of 150,000.

Larger lenders underwrite borrowers a little differently from local banks. The general loan value threshold is 2 million and up so buying at 2,500,000 is a minimum with 500k down to get the non-bank loans in many areas.

They generally look for a net worth close to the loan balance after down payment but put more emphasis on your liquidity when you apply for the loan. At a minimum they like to see 10% of liquidity after down payment for loan balance.

So on a  2,500,000 purchase

500,000 down

Loan balance 2,000,000

Liquidity after down payment requirement 200,000

Net Worth close to or equal loan balance.

These are not hard and fast rules but help your chances of getting approved if the property is a sound investment. You can land non-recourse loans with non bank lenders and protect your other assets. The local banks want full recourse unlimited guarantees. This is why some of my clients who do not have the capability to get into the better bigger loans by themselves will be open to partnering on a larger commercial property to gain the benefits they cannot get from a local bank. The larger lenders care less about foreign investors and will gladly fund them if their balance sheet looks good. Local banks want local investors with boots on the ground. 

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