I found a deal....now what?

Question

I think I found a good deal!  There's a 41 unit apartment complex in Eden, NC (close to Greensboro)  31 of the 41 units are currently rented.  The other units are being renovated.  39 of the 41 units are 1 bed/1 bath, 2 units are 2/2.  The 1 bedroom units rent for $450/mo landlord pays utilities- water, electric, sewer, trash. The 2 bedroom units rent for $650/mo tenant pays utilities.   They are asking $499,500 for the complex.  ....Here's the problem...I don't have the money to buy it!  I have very little to put down, and there's no way I could get a conventional bank loan for $500,000 with my taxable income.  Could I get a hard money loan?  How do these work with buy and hold properties?  Could I get a hard money loan, and show the income from the apartment complex to refinance in 12 months or so?

Hubert Washington · Answer

@Dwayne George

As @Mindy Jensen mentioned, apartments are a completely different ballgame. They are financed differently and also evaluated differently. First I would recommend connecting with someone who has experience investing in apartments and/or educate yourself more about how it works. Second, you will need to request financial information from the seller to determine if the property is even worth your time. If the numbers make sense and meet your investment criteria, you will want to submit a Letter of Intent to the seller to begin the negotiation process. Once you sign the purchase and sale, you will begin your due diligence.

There is a very systematic approach to purchasing an apartment complex. It is your best interest to make sure you truly understand this and keep yourself from getting into trouble. PM if you need additional assistance.

Good Luck!

Jake Henrion · Answer

The sellers asking price is irrelevant to your scenario. You need to analyze the actual property operations and compare to the sellers pro forma. Thats if that is the information you posted. You determine the property value/offer price

Gino Barbaro · Answer

@Dwayne George

Hi Dwayne

How much capital do you need to rehab the units? And are the rents below market.  If  they are, then you've got a deal. Check to see if the market will allow you to have the tenants pay for part of the utility expense.

If you don't have the capital, consider a partner who can lend you money.  You can run the apartments and charge a management fee.  Is the seller willing to hold some paper?

Gino

Joel Owens · Answer

Been there,done that.

Cheap doesn't equal cash flow.

The upside would have to be extremely high for an investor to take that on.

Dwayne George · Answer

@Mindy Jensen thank you! I'll check out commercial loans.

@Bill Richard thank you for the advice and the heads up! The property was once 22 2 bed/2 bath townhouses. One of the previous owners converted it into 39 1 bed,  2 2 bed, an office and a coin laundry room. The current owner is in the process of re-converting some of the 1 bed back into a 2 bed. The tenants are definitely low income, but they take care of the property.  I have not seen any of the rental history yet.... but the building is 100% occupied other than the units being renovated.

Bill Richard · Answer

That's a lot of one BR units. Why so many?  Is this an old motel?

12K per unit is pretty low, so you need to know why. Area? Vacancy factor? Type of tenants?

Check with some local lenders and hard money lenders both and see what they want and how far they will go on this project. My initial feeling is that you will have a hard time pulling this off without a strong partner who has done deals this size before and has a track record. From my experience, lenders are very cautious with new investors who don't have a proven ability to make deals work.  Nothing personal, but if you don't have a proven record and some skin in the game, so to speak, I'd look for a partner on this one.

Mindy Jensen · Answer

@Dwayne George, this would be a commercial loan, not a conventional mortgage. Commercial loans have a different qualification process, and take the property's history into account, more so than your personal qualifications.

Commercial loans are typically 5 years fixed, then a balloon payment or refinance at the end of those 5 years.

This is just basic information, please don't take this as gospel.

I'm tagging @Joel Owens here to help with a little more information. He knows what he's talking about when it comes to commercial.

I found a deal....now what?

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