Accountant · Pompano Beach, FL · Member since 2014 · 15 posts · 1 vote
I have been looking for my way door way into owning rental properties. I have came across a great deal for an 8-plex unit ($225K) where if I was to use the low end of the rental market I would still walk away with a Net Income of $1500/ month. My problem is I have no way of a down payment or anyone who could back me up. Other than losing the opportunity, is there any one with some great ideas?
You forgot to add into your calculations: future vacancy (it won't alway be fully occupied), evictions /legal fees, capex (roof, painting, heating/AC, appliances to name a few). The $150 in maintenance for a 8 unit is too low. I own a 5 unit and I've seen $300 a month in maintenance sometimes.
Investor · Houston, TX · Member since 2014 · 116 posts · 41 votes
12y
Do you have this deal under contract? That would be a great way to get serious people involved. You can come back to the marketplace forum here on BP and pitch your deal, asking for someone to buy it outright or to partner with you to hold it. But it's going to be very tough to get a private person to pony up their money unless you have this deal locked down with a contract.
You can go to local REIA events in the nearest big city and pitch your deal there.
You can work with local self-directed IRA and 401(k) providers to obtain loans from their investors.
You can get a gift from family.
You can take out a HELOC on your current property and contribute that money toward the purchase.
Residential Agent And Investor · Scottsdale, AZ · Member since 2013 · 212 posts · 83 votes
12y
What kind of analysis are you using to determine you will net $1500/month on this deal? If you give more detail maybe we can help you determine is this is a deal even worth pursuing any further.
Accountant · Pompano Beach, FL · Member since 2014 · 15 posts · 1 vote
12y
Will Porter, thank you for your ideas.
Matt Morgan,
Rent in location for a 2/1 is between 525 to 700. I used 525 for the numbers.
Cost of the unit is $225K
I used an idea of 30 yr. mortgage at 8% for 100% = 1651
Current taxes are around 3K = 250/ month
Insurance 3K = 250/ month
P.M. cost 10% / unit = 420/ month
Monthly maintenance = 150/ month
So as you can see I am confident with my breakdown, however the number that is subject to change that will make the difference is the Mortgage. I am not out here to
solicit partners or lenders, but drawing from the wisdom of B.P. community. All assistance is welcomed.
You forgot to add into your calculations: future vacancy (it won't alway be fully occupied), evictions /legal fees, capex (roof, painting, heating/AC, appliances to name a few). The $150 in maintenance for a 8 unit is too low. I own a 5 unit and I've seen $300 a month in maintenance sometimes.
Aurora, CO · Member since 2012 · 2k+ posts · 1k+ votes
12y
Hi Robert!
I highly recommend anyone starting to look at apartments read “Insider Secrets to Financing Your Real Estate Investments” by Frank Gallinelli. It will give you a good overview of how to analyze a property and how to go about doing your due diligence as well as explain some of the lending aspect.
Speaking of the lending, you'll be looking at a commercial rather than a residential loan for a property like this (more than four units). So you'll be looking for a specific type of lender than will offer that, not all can. It will probably be at a rate that adjusts after a few years and the term will almost certainly be for less than 30 years- more common would be 20 or 25.
Your chances of finding a bank that will lend to you on something like this if you don't have money of your own for a downpayment are slim. Not trying to be discouraging, just preparing you for that. Never say never, perhaps you can find a partner who want to go in on it with you, or perhaps the owner is interested in seller financing.
But, please be cautious about taking on a project like this without some reserve funds. It may look like it's cashflowing like crazy (on paper!) when you buy it but you have to anticipate problems, just to be sure they can be dealt with if they do arise. What if a tenant moves out right away and you have to redo do their apartment? New paint, carpet, maybe you find out the appliances are shot and you need a new stove and refridgerator... or one of the furnaces goes out... you get the idea.
The property I bought recently was a great deal -- for me -- because I bought it off a guy who got into it without funds to handle such contingencies. Units started standing empty and the property deteriorated (physically and financially) to the point that the bank made him short sale it. I don't want you to be that guy!
Accountant · Pompano Beach, FL · Member since 2014 · 15 posts · 1 vote
12y
Tom, valid points Thank you.
Jean, I will look for the book tonight. I did take into accountability that this was a commercial loan, but was not sure if they did a 20 year or 30 year loan. I do appreciate your insight and will look into these things. Thank you
Investor · San Diego, CA · Member since 2014 · 78 posts · 40 votes
12y
Robert, is there a possibility of obtaining seller financing? I'm new to investing but from what I've been learning on BP forums and the pod cast, depending on the seller's current economic situation, seller financing could be a great option.
Accountant · Pompano Beach, FL · Member since 2014 · 15 posts · 1 vote
12y
Isaac, that is a possibility, I am actually meeting with the owner tomorrow to look at all his units. He has 2 8-plex and 12 quad-plexs that he is selling. Depending on how the conversation goes will determine the next conversation.
This looks like a good deal to me. I don't have it cash flowing $1500/month, but I do see about $1100 into your pocket. You didn't include sewer, water or trash in your calculations. So I threw them into my numbers at a conservative version of what my places might see. I also factored in $10k in repairs on the loan.
Here are your monthly numbers as I see them. It hits my minimums of $100/door and 15% Cash on Cash return.
Mortgage Rate 5.00%
Length of Mortgage in years 20 (Commercial. If you get owner financing, ask for a 30 year note)
Monthly Mortgage payment $1,085.63 (30% down. Fairly standard on a commercial loan)
Taxes $250.00
Sewer and Water $333.33
Trash $150.00 (I pay this for 7 units in VT. Never had a trash complaint from tenants or the trash company)
Heat/Utilities $-
HOA $-
Cap Ex and Ops $300.00 (I'm usually good with $150/month for a 2-4 unit. So doubling that looks safe)
Littleton, CO · Member since 2014 · 195 posts · 72 votes
12y
Why is he selling his properties? If you can get some investors together to buy a few of his other properties you could wholesale them and use the money to make a down payment which might make him more willing to do owner carry on his 8-plex. If he is really a motivated seller he also might be more willing to carry a note. How did you locate this property? Was it listed by a Realtor or is it on Loopnet or some other similar site?
Weston, FL · Member since 2014 · 55 posts · 8 votes
12y
Seems like a good find but like others have said you should be conservative with your expense estimates and when in doubt estimate on the high end. As far as the down payment, maybe consider one of the crowd funding options like prosper.com or realtymogul.com. I've never used them but might be worth looking into. My biggest concern with this for you is the lack of reserves. Like others said what will you do if you have to replace the roof or make expensive repairs. Make sure you build that cost into your analysis. Look forward to hearing how it plays out. Good luck!