Seller financing on 6 unit apartment in PHX East Valley

8 Replies

Hey ๐Ÿ‘‹  guys,

I'm currently under contract on a 6-unit apartment building in the East Valley of the Phoenix MSA and the seller's are willing to carry the debt with 18% down at 6% interest only for 12 months. This is a value-add play. I'm buying this building for the potential of what it can do in the future after I Implement my business plan and by maximizing the NOI thereby increasing the value of this asset and then going back to the bank to refinance to harvest out the equity that I put into it.

This is my first off-Market, seller-financed  deal and I would love to hear your stories or any wisdom or advice that you can pass along as I go through this process That  would not only benefit me but others contemplating to go the off market, seller financed route.

@Derrick Grahn Thxs man! I think this will be a great value-add deal.

Purchase price is $385,000 (64k) per unit for 6units (all 1bed/1bath 504 sqft) 1953 vintage Apartment building with last renovations in the year 2000 such as electrical, plumbing, roof, HVAC etc.

Down payment $70,000 at 6% with 12 month loan term with 1yr I/O, no pre-payment penalty,

Current monthly income is $2,685 (avg rent is $447). Gross potential gross income is $4,200 ($700)

The cool thing about this purchase is it comes with 2 parcels. 1 parcel is 15k sqft and has the 6 unit apartment on it and the other parcel is 42k sqft of vacant land (possible potential to build additional units)

@Derrick Grahn

Today was the Inspection day part of due diligence.

I used Chad Cooper from AZ property inspections, the Inspector came out this morning and we walked the inside of the units inspecting under sinks, closets, A/C for cold air, Bathroom, water heaters, attic space, roof, main on/off outside water valves, washer & dryer rooms.

Inspector recommended that I have the sewer lines scoped and because of the age and the property is on a septic system so it must have the system inspected by an ADEQ certified and qualified Inspector.

none of the water heaters have on/off valves or Temperature/pressure-relief (TPR) valves which he said they should. 

he found some mold in two of the units because of 2 water heaters. Some of the outside on/off shut off valves for the water supply were "frozen"

The roof has some missing shingles from wind damage and missing rubber gaskets around piping that protrudes through the roof which allows water to get inside the attic.

This is a question for anybody who wants to chime in.

What other due diligence should I be conducting for an off-market seller financed 6 unit apartment building that comes with an adjacent vacant parcel? 

Any advice would be appreciated. Thank you, guys!

HI @Jason Crittenden

I was able to close this off-market deal. seller financing on the total purchase price of $385,000 with a 70k down payment at 6% I/O (interest only) with a 12 month term. No prepayment penalty. The 6-unit sits on 15,682 sq ft lot with an adjoining vacant piece of land that is 42,689 sq ft (0.98) acres zoned for multifamily. Not too familiar with new construction but I like to learn and have already reached out to the city of Apache Junction and a general contractor that has built small multi's in this area.

with this building four out of the six tenants are on fixed incomes and they are elderly. I'm going to be gentle and gradual with rent increases and renovating the interiors. this is one of the reasons why the owners decided to sell to me instead of a larger investor/ developer that was going to be aggressive and displace all the tenants right away. several of these tenants are Legacy tenants. Living here for 20, 16, 6yrs
I've already sat down and spoken with all the tenants and everybody wants to stay. A couple of tenants are open to placing their belongings in storage for a month or 2 while the unit gets renovated. Then they'll move back in. And repeat that process unit all units are renovated. The only issue I see with that is after Renovations I'm going to be placing new tenant screening procedures in place. Most importantly, my concern is I want to make sure that they can afford this place with the new rent.

@Johnny McKeon Congratulations on the new investment, pretty exciting!

One thought on the remodels if you could get one unit vacant, remodel that one, and then move an existing tenant over to the remodeled unit, repeat the process until you are done.

I have done that before and it's worked out well for everyone, the tenant gets a fresh place to live and the disruption is minimal. The rents really should increase at that point as you are delivering a better unit for them to live in. I agree to be sensitive to the situation with the long term tenants but also don't forget this is an investment.

I manage a number of doors in Apache Junction and have good luck with them overall, the demand is always high and rents continue to climb.