Closing on 6 Unit Property Today

[Ben Fulcher]

So today the wife and I are closing on our first real estate investment. It is a 6 unit complex we are buying for 146k. We should net around 400 in cashflow monthly which includes 15% for repairs and maintenance as well as 5% for vacancy. I fully expect to outperform especially on the vacancy due to the fact that some of the tenants have been there for close to 20 years. Also, I expect to outperform over the long term with repairs too due to the fact there is no central heating and air currently. The biggest hiccups we ran into was a large change in loan terms coming out of underwriting which changed the COC returns. So the down payment changed from 15-30% and the loan amortization changed from 20 years to 15 years because the bank wants to get to around 65% LTV.

[Tyler Lynn]

Ben, That's not a bad rate, but I would think you could still keep it around there with a slightly higher LTV and longer amortization. I do in the markets I work in, but don't believe they are nation wide lenders and aren't familiar with any lenders in your area. What I would suggest is to reach out to a lot of your local lenders and also a mortgage broker as they can even shop these loans for you. The key to tapping into this equity in the future is to get the apartment running smoothly with clean financials. If you can get your rents to market and take care of any deferred maintenance this should help your value quite a bit. As you may know 5+ units should be valued based on the income approach: NOI/Cap rate. If you can show the banks that your value is drastically higher due to higher rents and lower expenses you should be able to easily tap into that equity!