Multi-Unit (7) BRRRR

[Jonathan Roberts]

Hi All!

I have a deal that I am analyzing and I wanted to get some opinions. The property is a 7 unit apartment building that is in need of some repair. The seller has agreed to seller financing, and I am currently in contact with 5+ contractors to get a concrete idea of the repair costs (my estimates/the sellers are 25-35k). 

My plan is to purchase the property via seller financing, perform the rehab, rent out the units, establish an NOI, and then refinance. (The BRRRR strategy).

Deal Numbers: 

Purchase Price: 170,000

DP: 25,500 (15%) 

Repairs: 25,000-35,000

Estimated Rents: 3500-4000/mo

Some questions that I have: 

1. How long does it take to establish an NOI? I spoke with a local credit union that I have a relationship with and they said they could refinance right away and I was surprised by this (I have read a lot about "seasoning requirements").

2. Does anyone have suggestions for out of state commercial lenders? The credit union that I have a relationship was fine with doing residential loans for folks out of state, but told me that I would need to be in-state for a commercial loan. (The property is in Grand Rapids, MI - I am located currently in the Bay Area, CA). 

3. Is there anything else that I should consider with this being a commercial property? This is my first commercial deal, so subsequently I am a bit timid. 

Thank you all in advance for your time and thoughts! 

[Greg Scott]

@Jonathan Roberts

Be VERY careful with Michigan taxes.  Historical taxes are NOT an indication of what you will pay going forward.

A few years ago Michigan passed a law that your taxable value cannot go up faster than inflation.    Over time the value of many properties has grown much higher than the taxable value would suggest.   When a property is sold, the cap is removed and taxable value will rise to the current SEV.    

So, be sure you look at the tax rolls.   Compare SEV to Taxable Value.   For example, if Taxable Value is half of the SEV, expect the taxes to DOUBLE.   If Taxable Value is about the same as SEV, then you won't see a large bump.  (In Michigan, SEV should be 1/2 of market value)  Of course if you pay way above 2x SEV, your taxable value may still go up at purchase.

The property taxes on my 24 unit were $24K the year after I bought it but the previous owner was paying $17K because he had owned it a long time.   Fortunately, we planned for that.