Analyze My Seller Finance Bay Area Deal
Hello BP!
My business partners @Travis Limbocker @Courtney Limbocker and I have found a 6 unit in San Jose that is in need of significant repair.
Here's the deal:
Sale Price - $1,272,000 - 0% interest for one year. 6% interest after one year if we haven't completed the project yet.
We tried to negotiate a $1.15m buy price with a higher interest rate in order to take advantage of a lower property tax rate after we refinanced out but the seller claimed he'd incur a higher capital gains bill if he did that.
Rehab - 250-300k
ARV - 1.7m - 1.9m
Technically Zero Money Down...
Except we'll place 36k in Escrow once we're in contract plus an additional 218k to be held in escrow. This money will come in the form of a HELOC and will be drawn out of escrow as needed to cover our rehab costs. It's a show of good faith on our part to put some skin in the game to have it held in escrow.
Current Rent - $7000 a month
Pro-Forma - $11400 a month + $300 Garage rental revenue
Unit Mix:
Four Studios - Pro Forma $1450/mo
Two 2 Bedroom - $2400/mo
We will explore the possibility of increasing the sizes of two of the studios to one bedroom units.
Our goal is to refinance out at a higher valuation (We need 1.6M but prefer $1.8m) to pay off the Seller. Pretty much a multi family BRRR.
| Monthly | Annual | |
| Revenue | ||
| Rental Income | $11,700.00 | $140,400.00 |
| Vacancy | -$351.00 | -$4,212.00 |
| Net Rental Income | $11,349.00 | $136,188.00 |
| Other Income | $300.00 | $3,600.00 |
| Gross Income | $11,649.00 | $139,788.00 |
| Expenses | ||
| Property Taxes | $1,325.00 | $15,900.00 |
| Insurance | $200.00 | $2,400.00 |
| Property Management | $931.92 | $11,183.04 |
| Maintenance & CapEx | $351.00 | $4,212.00 |
| Advertising | $0.00 | $0.00 |
| Utilities (water) | $300.00 | $3,600.00 |
| Heloc | $1,450.00 | $17,400.00 |
| Other 2 | $0.00 | $0.00 |
| Other 3 | $0.00 | $0.00 |
| Total Expenses | $4,557.92 | $54,695.04 |
| Net Operating Income (NOI) | $7,091.08 | $85,092.96 |
| Cash Flow | ||
| NOI | $7,091.08 | $85,092.96 |
| Mortgage | -$6,959.52 | -$83,514.20 |
| Total Cashflow | $131.56 | $1,578.76 |
A couple of final things to note:
(1) We're using a HELOC to fund the construction. As a result, we have a significant expense that we must pay off monthly. Once paid, the deal (obviously) looks a bit better.
(2). This is a long term play. While this property may not be pumping out the eye-catching numbers years 1-5, we're confident years 6-20 will be extremely worthwhile. Both in cash flow and appreciation. Seller financing in the bay area is rare. Based on the current state of the property, a lender wouldn't go higher than 40-50% LTV, which means I'd need a cool $1m in cash or private money to do this normally. This deal will allow me to get into a 6 unit property in the bay area, with very little of my own money down and a significant stake in the equity.
(3) The ARV is what I'm most concerned about. I've spoken to two commercial lenders and they've quoted me at 3.5% interest, 5/1 ARM at 75% LTV...only no one can give me the value. Income based approach had me finding properties that have sold anywhere from 1.75m-2.1m.
(4) At the moment, our goal is to self manage but I included the property manager expense because I know we won't be managing it for very long and it's good practice to include it.
(5) I would like to thank the tremendous amount of people all around BP who have taken the time to answer questions for the new investors like myself. I may have completely mis-calculated my deal here, but to me that's not the point. It's because I come into these forums and get educated from the real, on the ground investors that I had the confidence and (half a brain and) the courage to attempt to put this deal together. So, thank you.
Having said that, please rip my deal to shreds and tell me what I'm missing :)