7 unit multi family house with tenants in all units

16 Replies

This is a great deal and I’m trying to find a way to finance it. This is my first commercial deal so I’m still learning how it all works. My brother and I have enough for 20% down payment. Or should we go hard money and keep our cash for other properties?

Avoid hard money.  Consider it a loan of "last resort".  Have you contacted a banker who will provide a loan for you?   I doubt it, since for your first property, I am certain they will only be lending 65-70%, which means you need 30-35% for your down payment. 

And you typically only go for "hard Money" when no bank will lend to you. And if that is the case, its either because the bank doesn't like your personal wages and finances, or they dont think the property can provide enough income to cover the mortgage payments (typically want NOI/loan servicing) to be 1.25-1.5x.) This is called the Debt Service Ratio.

Hard money lenders lend based on collateral securing the loan, and they are less concerned about your ability to repay. If anything goes wrong and you can't repay, hard money lenders plan to get their money back by taking the collateral and selling it.  You DON'T want that happening on your first deal.  They also have shorter terms 1-5 yrs, and charge higher interest rates, and they ALSO ask for a down payment - typically 10-40%... so I don't know why you think you could "save 20%" down payment to look at other properties.  

read this:  https://www.thebalance.com/har...

My advice - SLOW down, do a lot more research before going after this 'deal'.

Originally posted by @Tyler Vogt :

This is a great deal and I’m trying to find a way to finance it. This is my first commercial deal so I’m still learning how it all works. My brother and I have enough for 20% down payment. Or should we go hard money and keep our cash for other properties?

Depending on the purchase price the best loan options will likely be local commercial banks and credit unions. Your background financials will be a huge factor.  Even bank is different and offer different terms, rates and have different requirements. First step is to make sure you actually have a good deal that will service the debt after expenses and cashflow.

Since this is your first commercial property, I would focus on it and try to get this deal done rather than worry about saving your money for future properties. Especially if you think it's a good deal. And yes, try to avoid hard money.

Scrutinize those seven tenants. If that property was cash-flowing, Seller wouldn't sell it. Find out if those seven tenants have stopped paying their rent, using Covid and the government's Eviction Moratoriums, to live rent-free at Landlord's expense. Nowadays most Buyers want the property delivered vacant, to avoid the expense of having to evict all the tenants for non-payment. Keep us updated on this deal.

@Tyler Vogt What is the purchase price and the ARV?

The only time I like to use Hard money on my Columbus OH investments is when I know I can do a cash out refi soon after and pull out most, if not all of my money. If your total cost is 70% of the ARV I would do hard money for sure.

However it sounds like since the property has no vacancies this may not be the best option. I would just try to finance a more permeant loan from the beginning and then make your value add play and try to get rents up. 

Tyler,

have you considered an investor to partner with on your first deal? I just went into a mobile home park deal with investors to raise more capital for better pricing. Something to consider.

I also get hard money at 8 to 10% which is worth it on some deals

Good luck with this first deal. I hope you are able to close the deal

@Tyler Vogt Hey there good luck but spidey sense is tingling here...can you post your numbers? Are you accounting for vacancy/capex/repairs and turnover? I don't know Nebraska but at 7 units for 111000 you have a 75K loan to service, not much even at high end rates. Call it $600/month. And you are only cash flowing less than 100 a unit? The rents must be obscenely low and vulnerable to covid-19 issues and other tenant issues. And forgive me but you don't seem too informed about potential pitfalls involved in all deals and this one. Again, good luck--but please tread carefully. Your downpayment might be by far the cheapest part of this.

@Ttler Vogt In addition to asking your Realtor about whether ALL those Tenants are paying their rent, on time, every month, perhaps your attorney should insist on Estoppels from each Tenant and/or "the truth," from Seller's attorney. Something definitely doesn't sound right about this situation. I've been in this business way too long and am suspicious of any deal that sounds too good - especially in this Sellers Market. 

Keep us updated.

@Tyler Vogt I just checked the Listing. It appears the utilities aren't separated. Landlord pays gas, electric, water, garbage, property taxes, Landlord's Insurance, maintenance, repairs, etc. Those expenses will eat into any potential profit.

FWIW, people do sell cash flowing properties.....  so while yes, of course do your due diligence, just because it is for sale does not mean it is a dud....   people sell for all sorts of reasons - moving, death of family member, cash out appreciation, etc  

Originally posted by @Tyler Vogt :

This is a great deal and I’m trying to find a way to finance it. This is my first commercial deal so I’m still learning how it all works. My brother and I have enough for 20% down payment. Or should we go hard money and keep our cash for other properties?

You have gotten great advice already- great job taking action and getting started! Best of luck on this deal.