Residential Real Estate Agent · Tierra Verde, FL · Member since 2013 · 276 posts · 130 votes
12y
@Jason Abbott what is the actual breakdown of the units? Rooms, etc... Location? Have you toured the property? Have you run the full numbers?
If you finance the property it will be a commercial loan, which I like because it runs off the income of the property. Local lenders that I have spoken with are looking for 25-30% down with 3 or 5 year balloons, and rates just slightly more favorable than what Brady pointed out.
Even better would be if you could get the owner to carry the financing. Could be a win for him on the tax front and a win for you if you could negotiate it close to 5% and keep it that way for a large number of years or perhaps the duration of the loan. Perhaps the owner does not need $50k lump sum, you would need to find his needs and then come up with a solution that works best for both of you.
I think you might have found a deal here. It obviously depends one location and quality of the building and any major repairs that need to be done. But based on the numbers it looks alright. This is what I see:
Purchase Price = 260,000
20% Down = 52,000
Gross Potential Income = 50,400
50% of GPI = 25,200 which is also your NOI
Debt Service / 80% LTV / 20 yr amm / 6% = 17,882.16
Cash Flow = 7,317.84
Cash on Cash = 14.1%
Keep in mind that this is a C property so your expenses could be higher then 50%. That is just a guideline to do a quick evaluation. Obviously you will need to get P & L statements from the seller for the last 3 years. I also like to get a year of utility bills and 2 years of tax returns. No one is going to inflate their income on a tax return.
It just depends on what your investment goals are, but I think most people would say a 14% cash on cash return is pretty good. That will be even higher if you manage this yourself.
Tampa, FL · Member since 2014 · 11 posts · 4 votes
12y
@Account Closed Agreed and thanks for reminding me about the utilities and water. I've requested the P&L statement, not the tax returns.... much appreciated!
Woodland Hills, CA · Member since 2014 · 1 post · 0 votes
12y
expect a fair amount of turn over with smaller units, meaning your vacancy reserve should be higher and plan on spending gas money driving over to see tenants.....showing the property etc.....
Rental Property Investor · Brookline, MA · Member since 2013 · 1k+ posts · 777 votes
12y
Originally posted by Account Closed:
Debt Service / 80% LTV / 20 yr amm / 6% = 17,882.16
Is the 20% down/20 year a "standard" in 5+ unit purchases? In the 2-4 MFHs I've been working with/looking at, 25% is the minimum down payment and 30 year mortgages are available.
The 20% down with a 20 year am is what I have been getting the last few years on my deals. I might get away with only 20% down because I have been with this bank for about 5 years, but I think other investors are still seeing 80% LTV.
I agree with looking at the tax returns. No one will exaggerate their income or lower their expenses on their tax return. Especially if this is your first deal, it is a great way to know exactly what you should expect for cash flow. Once you have a few deals under your belt and know your market, you will know how a property should perform and wont need to look at the sellers tax returns anymore.
Residential Real Estate Agent · Tierra Verde, FL · Member since 2013 · 276 posts · 130 votes
12y
@Jason Abbott what is the actual breakdown of the units? Rooms, etc... Location? Have you toured the property? Have you run the full numbers?
If you finance the property it will be a commercial loan, which I like because it runs off the income of the property. Local lenders that I have spoken with are looking for 25-30% down with 3 or 5 year balloons, and rates just slightly more favorable than what Brady pointed out.
Even better would be if you could get the owner to carry the financing. Could be a win for him on the tax front and a win for you if you could negotiate it close to 5% and keep it that way for a large number of years or perhaps the duration of the loan. Perhaps the owner does not need $50k lump sum, you would need to find his needs and then come up with a solution that works best for both of you.