How would I buy a $1 million MF unit if I only had around 250k? Is it even possible? How are people funding all these 1mill + units? I contacted a couple lenders, but they've just been giving me the run around. Do I need to save up more $$? I'd really prefer to buy one large unit then multiple smaller units. Any advice?
Typically you are looking at 65-75% LTV. They will require you have some experience and cash reserves.
You will probably need to partner with someone or buy some smaller units to accomplish your goals.
Typically the number of units refers to the number of apartments...it sounds like you are wanting to buy 1 building with multiple "units" (apartments) in it.
Many commercial lenders will offer 75-80% LTV on residential rental properties, so theoretically you shouldn't have any problem buying $1M of property with $250K. It definitely depends on the property though, the cashflow must easily support the debt service (typically 1.2 DSCR is the minimum) and you have to have some experience or budget for property management.
Am I reading this right - You're looking to make your FIRST investment in real estate a $1,000,000 apartment building?
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You want a million for your first property? Save 2 million, you'll qualify! :)
@Tou V. Do you have an idea or indication why the banks are giving you the run-around? A 25% down payment is more or less on the money, you might need 30% depending on the property (market, size, condition, etc).
Regardless of the building being three units or 100, you won't get anywhere by just walking in and asking for terms. Have a package ready. For starters, a resume and personal financial statement with back-up (bank statements, tax returns, etc).
Next, and most obviously, you have to have a specific property in mind and ideally have an executed LOI (purchase agreement with the usual financing contingencies even better). Banks, like courts, don't like thinking prospectively or hypothetically, they like dealing with concrete issues and problems.
The bank will want to know the final purchase price, NOI, DCR, etc, and they can't know any of that if you just ask about a loan on some building you drove by and are thinking about maybe kinda looking at next week. They need rent rolls, copies of maintenance contracts and leases, tax and utility bills, historical P&Ls and everything else you would have asked for during due diligence before you made an offer or during the contract DD period.
A loan is a business deal. If you want the bank's money, show them that you respect their way of doing business.
I have noticed that in the markets where I invest, large apartment complexes are often times divided up into smaller parcels of 3 or 4 units so they can be sold with residential financing. I have seen a 20 unit apartment complex sold as 5 - 4 plexes. You might want to look for deals such as that, which would allow you to own a larger complex without the hassles of getting commercial financing.
@Tou V. - I am in the process of doing this. We have experience in REI though and solid credentials. I am awaiting the detailed numbers today... but based on the info we have so far our lender said 20 - 25% down with 6 months reserves P&I (not PITI) on all properties.
@Tou V. Most of the key points have been identified above. The key points to buying a million dollar property. Either you and/or your partners need
1.) experience with property type and similar size.
2.) net worth equal to the loan
3.) liquidity equal to 10% of loan or 6-12 months debt service
4.) property 1.2 dcr or better
5.) 25-30% down plus closing costs, not to be counted in above
6.) 12-24 months p&l
7.) current rent roll
8.) personal financial statement for all loan signers
May be required: capex reserve, first year insurance premium+
Tou one avenue is finding owner financing from a retiring landlord. You put say 10 to 15% down and save the rest for reserves.
You have to make sure you are not overpaying for the property and you get good loan terms.
I do this for some of my clients who are out of the country and can't get conventional financing or they have cash here in the states but for one reason or another do not meet all of standard banking criteria to get a commercial loan.
If you don't got this route you need to save up more money or get a partner. It also helps how fast you can generate capital. Someone that has 250k in cash making 75,000 a year income is different than someone making 300k a year or more from their job.
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