Scenario breakdown of 6 unit property

12 Replies

So I have this 6 unit property under contract that needs about 40k-50k in repairs.

Purchase price $89900

Total Rents after repairs $3400

This is in C class neighborhood

My question for seasoned investors on BP is how would you finance this deal and

What would be your strategy?

I would like to use leverage as much as possible.

I called couple of hard money lenders but they don’t finance if the property price comes under 35k. Is there any hope to get this deal done without paying all cash for it? Thanks in advance.

@Sachin Bhat , local banks/credit unions may offer purchase+reno loans. They'll require 20% down of the total, plus reserves. We found two local banks offering this product when pursuing a 12-unit recently.

@Kurt Jones , why don't you think this deal will cash flow? My back-of-the-envelope math shows cash flow of ~$700/month after reno and bumping rents. No great on a per-unit basis, but screaming ROI of ~30%.

Thank you for the reply. @Jaysen Medhurst @Kurt Jones

@Kurt Jones so we are on the same page the purchase price is not 899K, it is 90K.

 The break down as follow 

Purchase price is $89,900, 

Rehab to get rent ready $40,000+-

Total rent from all units is around $3300

Owner pays all utilities $500

Taxes $320 per month

Insurance $71 per moth. 

Repairs/cap ex $250 per month

Vacancy $200 per month

market cap rate is 7.5% to 8%

Based on this info would you invest int this deal? My plan was to do BRRRR strategy using hard money then refinancing out it. Is there any banks would do refi after I rehab and stabilize the property.

@Sachin Bhat , a refi shouldn't be a problem. With a commercial loan the seasoning is usually 1 year (not 6 months like with residential), so keep that in mind. Have that conversation with your lender now. It's such a small amount of money, is there any way you can purchase + reno with cash and then do delayed financing after the year is up? Seem silly to pay closing costs twice on such small loans.

Question about reserves, and I apologize for hijacking the thread... would a lender need reserves based on, what exactly? Are they just looking to make sure you have enough reserves to cover the mortgage payment? Or that, PLUS empty units. 

@Jaysen Medhurst thank you for that info. I can pay cash but then I won't be able to purchase more properties since I can't leverage my funds for one year. My goal is to add more properties to my portfolio that has monthly positive cash flow after all the expenses. Yes I have to pay closing costs twice but I would love not know if there is a way I can avoid it by still leveraging the property with debt. 

@Christian Nachtrieb No worries brother. I usually post so it can help everything on BP. So, they can learn from my scenario. As far as the reserve the bank want to make sure if the tenants move out of you have vacant property you are able to still make that monthly payment. The rule of thumb is you need 6 months reserve saved that can cover All the monthly expenses for that property. 

@Sachin Bhat , one possible idea: purchase and reno with cash. Talk with a local lender about establishing a LOC (using the property as collateral, if necessary). Delay finance after a year, so you're only hit with 1 set of closing costs and can use the LOC in the meantime, if any deals come your way.