Analysing 2 x 10 Units Which One or Both?

Question

Hi BP!

I am analyzing two properties in the same town as I am interested in purchasing one or both for my first REI. All of the data has been provided by the owners.

Here are the numbers for the two properties: Two Property Analysis

Location: Maine - College Town - 6 colleges - 6,000 students

Property: Both are 10 Unit buildings

Local Cap Rate: 10%

Financing: This is the area I am weakest, but I believe I have four options:

1. Save up for the ~$88k down payments ($44k each). This will take me 2 years, but I can be pre-qualified for $700k based on income and little debt. (the deals will be gone by then)

2. Find Private Money Lenders to raise the $88k down payment (and hold in account for 90+ days), give them a 7% ROI and a 20% carry on the cash flows for 5 years. Not sure this will work from what I have read on the forums.

3. Find Private Money Lenders for 100% of the purchase price ($240k each property)

4. Seller Financing similar to PML if I can negotiate this.

Your thoughts are greatly appreciated.

Thank you!

Jamie

Ed Emmons · Answer

I finally figured what LA meant, I was thinking California. I owned 45 units in Lewiston not long ago. I am real familiar with the city and the corruption particularly between the police and Pine Tree Legal. I forget who the code enforcer there was in 07 if he is still there, he is very helpful. The person who was managing for me is still managing 30 units for the guy who bought from me. She is totally honest and lives in area. If you want to send me a private message, I can give you contact info. She can give you a lot of insight to area and probably by address.

Joel Kadlec · Answer

I read in the posts that this is in out of state deal. Personally, if this is your first deal I would steer clear of anything out of state. You said your family lives there, but if you're not physically able to be there and oversea operations that could be a "make or break deal." Also being your first deal and going from 0-20 units is a major undertaking with the addition of unconventional financing. I myself am still a newbie for the most part so I'm just offering my opinion is all.

In December I bought 8 units (2 quads) and it has taken a lot of sweat equity to get these performing well with good cashflow. I am looking to get 12 more units this month 3 quads in one deal, but knowing what I know now I would never even consider an out of state or even a lengthy drive deal with multifamily. 240k for 10 units means the property probably has been mis-managed and needs some sweat equity and a few repairs.

Whatever route you decide to go I hope you are successful and keep us updated!

Best,

Joel

Andrew Ware · Answer

Yes Lewiston is a college town but are those college properties?  L/A is very much a neighborhood by neighborhood place.  I just see you are from out of state and want to make sure you know what you are getting yourself into.  Not to say you can't make money, they are just entirely different tenants.

Ed Emmons · Answer

I thought they were in a college town in Maine. If you are real confident about the future of these in terms of your goals. Could you offer to buy an option from seller to secure the deal and buy you some time?

Ed Emmons · Answer

if you don't mind saying, what town? It may make a difference for financing?

Joel Kadlec · Answer

Real quick, are you saying each 10 unit buldg is 240K?

Account Closed · Answer

@Andrew Ware

Can you explain a little more about the "entirely different tenants" and how you factor that into your property analysis?

True, I currently live out of state, but most of my family is in Maine. In fact my mother grew up in Gardiner and my family has deep roots in the area. My wife went to school in L/A and we are planning on moving back to Maine over the next few years.

Thanks in advance for your advice and help!

Account Closed · Answer

@Ed Emmins

Buying an option is a great idea. What would that upfront cost be on the $240k?

I think these are great investments that have solid unit economics. LA doesn't have great appreciation, but over the long run I think there is strong cash flow from the college students and rents are increasing.

Any thoughts on doing seller financing by offering them $20k/yr for 20 years?

Analysing 2 x 10 Units Which One or Both?

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