10 unit creative deal in the making
Talking to seller of 2 multi units' buildings a 4 and a 6 looking to sell at $1,600,000 haven't done Due Diligence yet as she tells me there's rehab needed. Knob and tube and other TLC needed. Plus, a couple of vacant units. She is asking for 600k to pay off a loan which leave s a million of equity. rents are way below market and vacant so makes it interesting to say the least. As I run my numbers just the the market rents on the 6 unit alone if it were to sell at a 6% cap once stabilized would achieve a price of 1.9million. Will take a look at the property tomorrow and update this post.
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#3 1031 Exchanges Contributor
- Investor
- Las Vegas, NV
Are you sitting on AT LEAST $50-$100k in CASH?
You’re talking about paying $1.6M, adding $100-200k in improvements to make it worth $1.9? (So you might be upside down after selling costs if you have to sell?)
Until then you have $3k income minus $4,775 to seller, (4% over 30 years), $3,990 to the bank ($600k @ 7%), figure $500/mo for insurance and another $500/mo for taxes? That’s $10k. So you’re bleeding $7k/mo if you pay cash for the repairs. Which have to be done before you get any rent increase.
Honestly I can’t believe the seller is dumb enough to let you buy with no skin in the game as they will be in second position. They stand to lose $100k+ if you fail. (They won’t get to keep that $600k, the bank will own the property if they don’t get it back. But they’ll also be out all the selling and foreclosure costs.) On the other hand you virtually have to finish or bail, you can’t sell at a profit until then. And you can bail pretty much at any time without losing any/much money. And even then your dream is to make $100k?
If you have nothing to lose if you fail get them to sign before they talk to anyone who knows real estate. If I couldn’t sell, and wasn’t using a realtor, I MIGHT take that deal with $160k from the buyer, but more likely $320k. Good luck for sure.