Buying bundles of homes from the bank
My banker gave me a call and said the bank had repossessed 100 homes from a group who was buying them for cash for under market value, refinancing with the bank at market value, and using the equity to buy more. Eventually the deals ran out and the notes were do and they couldn't make the payments. Now the bank is sitting on these notes and has offered to sale them off in groups of 10 homes per package. Bank is offering 100% LTV on a 20 year commercial with 4% APR (the financing is what gets me interested). The bank is paying all closing cost as well.
About the homes:
100% occupied. Low income, affordable housing in distressed neighborhoods.
Here are the numbers, they vary between packages but are all roughly the same:
10 homes for $350,000
Gross rent is $5,000
Vacancy (10%) - $500
Management (10%) - $500
Repairs. (15%) - $750
Taxes. - $300
Insurance. - $300
Expenses. $2,350
Mortgage expense $2,120
Total expenses. $4,470
Cashflow. $430
To me, the cashflow on 10 SFH is not worth the headache, however it is very appealing to me to have 100% financing and nothing out of pocket. I understand that financing the entire deal cuts into my cashflow with a higher mortgage. Depreciation and repairs are likely going to be higher than usual however not coming out of pocket means I have the funds to cover larger repairs because Its not tied up in my equity.
I would not be interested in this deal if it required a down payment, however adding 10 homes to the portfolio for signing papers sounds nice.
Does anyone out there have experience buying home packages from the bank?
What are the red flags and other considerations I should be making.
The agent told us that if the package was appraised, it would appraise around $500K so there is equity built into this deal.
Ramsey