Apartment deal structure

5 Replies

I'm looking at a building and the seller is offering financing of a portion of the deal. he's listed it at 2.1M. After running numbers on it and padding them to what I feel would be a real world number I'm coming to a value of 1.8M. Gross rents at 221,000 annual with expenses at roughly 100k (he's listing expenses at $57k). My question is in the structure of the deal based off my numbers. Based on conversations with the broker he feels that's where the seller is trying to land (1.8M) which I have no issue getting him his money. Write the deal at 1.5M with seller carry back of $325,000. After year 5 do a cash out refinance and return his money and the additional 325k (A portion of the equity) This would net him the 1.8M plus the interest I pay. Am I thinking properly? My goal is little to no money down. Am I reaching here? This would help me in achieving the goal of turning the building around. it's not falling apart , but could use some fixing up on the insides to bring it up to market rent potential. I think there is a lot of upside for sure. Thanks guys and gals feedback welcome on the structuring side.

@Donnie Mendell have you had any  discussions with lenders on this deal yet? What sort of terms are you looking at and do they know you're considering having the seller carrying a 2nd for 20%ish? My quick math on this says your mortgage costs are going to be $10k a month or higher so you'd be breaking even or losing a bit of money.

What is your plan to get to a point where you can refinance out in 5 years? Can you raise the rent or lower expenses on it?

All discussions have been with the broker. I am getting "The seller wants proof of financing included with the LOI before he will sit and talk directly with the buyer". I cannot believe I am the only one who has received the same. Speaking with the maintenance guy for the building and one of the brokers assistants I gather this is not to be far from the facts. In the discussions I have had with the broker I asked directly about seller financing which is also in the listing and he confirmed he will offer some financing. I have to revise my numbers as I went with the wrong math here. Deal at 1.4M with the seller carry back of 350k and expenses running at about 50% of Gross income after vacancy. Potential gross of 221k with a 10% vacancy and concessions comes to 198k for gross rents. Expenses at around 99k leaves an NOI of 99k with the debt service at 78k. The market here is at an average of about 3-4% increase annually on rents. The location is good and there is room to bring these units up now. The units can still be updated and rents can be increased with tenant turnover. They are about 50-100 below market on most of these and probably more. I haven't seen all the units, but the three I did see need to be updated and talking to the maintenance guy he also said there are more that need to be done as well. It also seems like there has been some mismanagement as well I am told by this guy. Is it a big risk on my part to structure it so I get him the rest of his money (350k) at a 5 year refi. Essentially he would act as an investor with some stake in the equity.

I just realized I didn't tag you in my reply @Jeff Kehl

My apologies in advance if I am reading this wrong but how is the seller financing you the 350K? Is it interest only with a balloon payment due in 5 years? If so, don't forgot to account for your monthly interest payment on the seller financed portion

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