Rental Property Investor · West Lafayette IN · Member since 2018 · 88 posts · 30 votes
Has anyone run into a situation where they have seen or purchased a small apartment building that was listed incorrectly as a single family? It's been on the MLS for 139 days and the numbers look amazing. I'm just trying to get some insight into the listing process. Could it just be sitting due to the fact it's in the wrong spot?
Rental Property Investor · Teaneck, NJ · Member since 2016 · 567 posts · 291 votes
7y
@Katie Jewell Could be and happens very often. Finding and buying properties like that very often is the same as buying off market properties as there are not many competitions.
Rental Property Investor · Teaneck, NJ · Member since 2016 · 567 posts · 291 votes
7y
@Katie Jewell Could be and happens very often. Finding and buying properties like that very often is the same as buying off market properties as there are not many competitions.
Specialist · Washington, DC · Member since 2019 · 177 posts · 150 votes
7y
@Katie Jewell
You might also want to be sure that the realtor is competent. They may not have a clue as to how to market the property in that case you may want to assume the numbers are off.
Palo Alto, CA · Member since 2017 · 230 posts · 200 votes
7y
This is not unusual. Personally I brought a 6-unit condo building for below market price. To me, it is a 6 unit multi-plex, but it was listed 6 times as 6 individual condos from the same building. It was on the market for at least 6 months. If this was listed as 6 unit multiplex with clear income statement, likely price would be at least 30% higher. Funny part was owner is the real estate agent who simply don't touch commercial and never reported income on these units for 5+ years.
Try to take advantage of it. Don't mention anything to the listing agent. Try to offer lower price even if existing price is already good. Only disadvantage is they might not have good expense and income info.
Rental Property Investor · West Lafayette IN · Member since 2018 · 88 posts · 30 votes
7y
Ok, thanks all! I guess my next question is do I go in with cash and refi with a commercial loan later, or go in with a commercial loan right away? It’s affordable either way.
Listing errors and listings with incomplete data are quite common. Sometimes people do not understand what they are selling, or don't care. These are the exact kinds of things I look for as my area is relatively high $/sqft. An example, I've seen an MLS listings where the agent input map data indicated the property was 5 miles away on the other side of a major freeway. This meant anyone skimming listings by location instantly thought this property was about $300k overpriced, so obviously it never got an offer. Then I came along.
You want to check the current zoning matches the structure, and/or understand any grandfathering requirements towards your intended purpose after purchase. Also you need to check with title to see if there are past code violations, maybe there's an issue there.
Rental Property Investor · Closter, NJ · Member since 2015 · 884 posts · 722 votes
7y
Years ago I purchased an awesome mixed use building (retail storefront on first floor and two apartments above) on a large lot. Nobody knew it was For Sale because the agent had incorrectly listed it on the MLS under the "5+ mixed use" category. I knew the building and knew it wasn't "5+." There were no offers on it because it wasn't listed correctly. I got a great deal.
Ok, thanks all! I guess my next question is do I go in with cash and refi with a commercial loan later, or go in with a commercial loan right away? It’s affordable either way.
Cash is always better, as you may knock off the price even more. instead of refinance i would recommend to get "Line of Credit" from the local bank or Credit Union. It is much faster, less expensive and more convenient. If you are not familiar with "Line of Credit" - it is like HELOC on the owner occupied property, or like a Credit Card against your property.
Ok, thanks all! I guess my next question is do I go in with cash and refi with a commercial loan later, or go in with a commercial loan right away? It’s affordable either way.
Cash is always better, as you may knock off the price even more. instead of refinance i would recommend to get "Line of Credit" from the local bank or Credit Union. It is much faster, less expensive and more convenient. If you are not familiar with "Line of Credit" - it is like HELOC on the owner occupied property, or like a Credit Card against your property.
Rental Property Investor · West Lafayette IN · Member since 2018 · 88 posts · 30 votes
7y
@Chase McArthur thanks so much. This would be my first multi family. I’ve only done ones and twos so far. So I hate to be uneducated in this space and am learning, but can you please tell me what OM stands for? I would appreciate it.
I talked to an agent last night and am having him try to confirm all of the operating expenses.
Specialist · Washington, DC · Member since 2019 · 177 posts · 150 votes
7y
@Katie Jewell
Its totally ok, no matter how experienced any one is we are all still learning! So you keep at it!
So an OM is an Offering Memorandum, this is often times a small books size brochure of all the details of the property. Things like pictures, descriptions, market information of the surrounding area, stuff like demographics and such. It will also have a section that briefly outlines the current financials of the property as well as something called a proforma. This is basically the brokers best guess as to how the property could perform if the world was perfect and full of rainbows and unicorns, so its essentially worthless.
Honestly the property may not have the nice colorful professional created booklet of a offering memorandum, but it should at least have a basic breakdown of what I desribed above. Its an 8 unit which is considered a commercial property, and the truth is the lender will need an operating memorandum along with all the financials for as far back as you can get in order to understand how the property has performed and then you need to put together a plan of how youre going to make it perform better. Basically your own version of a proforma. There are caveats to commercial lending that has to be met. Occupancy rates have to have been above a certain percentage for a specific amount of time, this depends on the lenders criteria. Most of the time its at least 90% for the trailing 90 days. Also lenders will look at whats called the DSCR or Debt Service Coverage Ratio. The is a ration of NOI to annual loan payment. In other words if the annual loan payment are $100k and the NOI is $100k then you have a 1/1 or 1.0 ratio...no bueno. Most lenders require a 1.2 DSCR value to lend, the higher the better. So to achieve a 1.2 for the example you would need $120k NOI, but you make nothing on the property so its still a wash. After you get all the financials and determine how much the loan will be with your interest rates, just google DSCR calculator and punch in your number and it will tell you what the DSCR will be. Id bore you with the formula but thats why we have google.
Sorry for the long response, but I'm here to answer absolutely any questions you may have. PM me anything you got.
Rental Property Investor · Upstate, NY · Member since 2012 · 3k+ posts · 3k+ votes
7y
We nailed an amazing 2 houses both 3bedrooms but listed as a single home. Divorce so out of state owners. Picked it up for $46k held it for 5-6 years spent $10k on rehab then flipped it for $75k, holding the note. The rear 45x66 lot with laneway access was available at the 2018 tax lien auction & our buyer got it for $2k. Wished we hadn't sold it because it's probably now worth $125k.
Picked up another listed as a 3-unit that we upgraded/converted (to code) to a legal 6-unit. That double in value.
Picked up an old 1900's 'duplex' listed by out of state heirs for $46k BUT it had a newer (1990's) 3 bedroom home in the rear of the lot. Rented it for 10years pulling $1000/month clear.
Rental Property Investor · West Lafayette IN · Member since 2018 · 88 posts · 30 votes
7y
@Chase McArthur
Thanks for the wonderful reply! Very helpful. There is definitely not a OM. After talking to a local agent, I don’t think any of them have a clue it is really valued differently and are just trying to sell it in the single family realm. I am not totally sure how to proceed. The property should cash flow nicely regardless of how it’s purchased initially, but I’d like to do it as right as I can. I’m not sure how to proceed I guess. We could pretty easily make a cash offer and float that for a while and then maybe work with a commercial lender once we have some of our own numbers. Or do I involve a commercial broker now? I think it’s a potentially great property for me to learn more about commercial real estate but I’m not sure if there is a better path.