Help

6 Replies

Hi All,

I do not know why I experience such great anxiety every single time it's time to "pull the trigger."  So, I just wanted to run this deal by you guys, I guess for some encouragement to actually pull it, and some input, of course.  So here are the numbers.

2 multifamiles (package deal)

1st:

6 1 bedrooms

4/6 currently rented at $560/mo

other 2 will be rent ready upon transfer of ownership

Owner pays all utilities, estimated at $500/mo

Taxes $300/mo

2nd:

3 1bdrms, 1 2bd

Everything inside and outside, pretty much brand new

Vacant

Rents should yield $500-550 per month for each unit

Tenants pay gas/electric

Owner pays water/sewage

Terms:

Total package price $110k

Down payment:  $20k

Seller Finance:  $90k

Interest:  6%

Term:  6 years

I am also thinking of whether to use cash for the 20% or finance that too? If I finance it, payments would be roughly $400/mo. So any thoughts? As always, I have a bit of anxiety about it...I currently own 5 SFR, and had anxiety with each of those purchases, and also for my primary. I guess it's even more anxiety with this one because it's my first multifamily purchase, and I'm doing two at one time...huge step from 5 doors to 15. And btw, I have one other 30 year loan on one of my properties...20 years left, and one other loan with 4 years left. The others are free and clear.

Thanks, in advance, for any input/encouragement!

Katrina

From the surface this seems like a pretty great deal, almost too good to be true. What about any deferred maintenance? How much work does the property currently need? What is the area like? Why are there so many vacancies if pretty much brand new inside and out? What is the sellers motivation for selling the property without even trying to lease it up first? 

Thanks for your response, Zach!

What about any deferred maintenance? - the 6-unit has deferred maintenance, but it's the one that's occupied.  Will need some chimney work, and a few other things...mainly outside cosmetics.

How much work does the property currently need? See above

What is the area like? My areas are all C+ neighborhoods...not great, but what most are used to.

Why are there so many vacancies if pretty much brand new inside and out? He's actually just finishing up on repairs..they're not even done yet.  Per the contract, they have to be done before transfer of ownership, with the stamp of approval from the city code compliance office.  That's why they're vacant.

What is the sellers motivation for selling the property without even trying to lease it up first? See above. But basically, he inherited the properties from his deceased father last year, and discovered REI is not his thing.

How do you know the vacancies will be filled right away?  Is this in a neighborhood where there is a very high percentage of renters?  Any ideas of how long it takes to fill vacancies in nearby multifamily properties? You may want to research that a bit.  A business plan to fill vacancies will be something most lenders will want to see. 

Thanks, Rita!

How do you know the vacancies will be filled right away? I don't really know.  But based on my experience with SFRs in the area, they will be filled within 2 weeks.  Again, I don't know how different it will be with multifamily, nor with 1 bdrms...all mine are 2 and 3 bdrms.  So, I guess we'll see.  But I suspect it will be quick.  It's a very strong rental market, in general.  There are FAR more renters than homeowners.

Is this in a neighborhood where there is a very high percentage of renters? Yes!

Any ideas of how long it takes to fill vacancies in nearby multifamily properties?  Nope!  But, guess that's what I'm going to find out.  This is a good question.  I'll call some of the property managers on my list to ask them about this.

If what you have described is all true and accurate then I can't see why there is a hold up. As Rita said, what are occupancy rates like in the area? Even if it's a slow lease up, the existing rents sound like they are enough to keep you afloat for a short time. Is the seller financing interest only for 6 years with a balloon payment, amortized over 20 or 30 years with balloon in 6, amortized over 6 years at 6% so payments are like $1,400/mo., etc.?? That makes a big difference on what your payment is going to be. Overall, I don't see any reason to not move forward with this deal. If you do back out please pass along the sellers info ; ) Good luck!

Hey Zach!

Thanks for the input!  The seller financing is amortized for 6 years...so the payments are very high at $1491.56.  They are high, but I don't like the idea of balloon payments.  So I'll take the high payments to get it paid off within 6 years, without the stress of that huge payment at the end.  Thanks for the input, and if I decide to back out, I'll definitely pass along the seller's info :).