8 door Sec 8 opp. for $640k asking - cash flow of $100,800

19 Replies

Looking for advice:

8 door MF unit in Boynton Beach, FL - asking $640k, 100% occupied with Sec 8 tenants - monthly income of $8400.  Haven't figured out why owner claims gross income of $91,740 yet but all of my analysis has been done on the $100,800 based on $8400*12.  Taxes at $6017 and owner states operating expenses at $13,470 and total expenses @ $19,487 with net operating income at $72,253.  Property needs approx. $20-30k in improvements based on a simple drive by viewing.  When I run my analysis with 5% vacancy, 5% capex, 5% repairs, 10% management and 6% property taxes I'm showing $2600 in monthly expenses before any kind of financing.  I have approx. 200k cash that can go into purchase and repairs but I'm running into a couple of hurdles.  First, I haven't found anyone willing to refinance the deal without 2 years rental and ownership and I hate to take hard money out longer than a year on the deal.  I'm open to any and all ideas on the creative funding to make a deal like this happen so perhaps somebody out there with more experience/creativity can chime in.  I have no intention of offering $640k but the cash-flow on this opportunity made me feel like I should at least see what everyone else had to say.

469-995-0090

Do you qualify for conventional financing?  If so, have you tried asking the local banks and credit unions for a commercial or portfolio loan?  That's probably your best bet for the refinance.

Otherwise, there are long-term asset-based lenders as well, but they're going to be a bit more expensive.

Can you not just get a portfolio loan through a bank? That sounds like the easiest route. It’ll be an ARM loan, but you should look into those.

@Jason McGraw Is the owner willing to seller finance? You might pay a higher interest rate for now, but you can rack up rental history and length of ownership. Then refinance with a local bank or CU after the required time. (1-2 years) Sounds you have enough meat on the bone to afford the higher temporary int. rate. 

(281) 409-6525

This post has been removed.

Hey guys,

I appreciate all the great info and I’m going to start by asking the bank or CU for a commercial loan and about ARMs come Monday.  It seems like the over 4 doors makes it a bit more difficult but using these ideas I’m going to give them another shot next week.  I did think about the seller financing but I haven’t asked about that yet but I will. There is definitely enough meat here to go higher interest for a year...just don’t want it to last much longer and I’d like to have a good idea on my exit strategy before going head on into the deal. I’ll keep you guys informed and I appreciate the info. 

469-995-0090

Why do you think getting a commercial loan will be so difficult. I have several commercial loans, they are 5 year fixed at 5%, they adjust every five years to the 5 year treasury note rate(around 2%) + the bank adds 3%. They have no balloon payment and extend to 25 years. 

I’ve found that If you have a job, cash liquidity and a property that cash flows commercial banks are happy to take on a deal. 

I just did some rough numbers assuming you purchase it at 600k. if the gross rents are 90,000, expenses at 31,200 and debt at roughly 30,000(based off a 5% interest at the terms I've told you are out there) you have a net cash flow of about 30k per year. 25% down is 150k. That's a 20% COC return.

I’ve obviously left out the amount of repairs you think are needed. You may be able to get them to add that into the loan amount and disburse it to your contractors once the job is done.

This isn’t a deal I would try to get out of after 2 years. I’d hold this as long as possible.

Chris, I'll certainly look into that option. Nobody I spoke with at the banks to this point have mentioned the loan structure of what you described but I'll certainly ask for it next week when I try to look at some of the options presented by the forum today. Your COC ROI is directly in line with my numbers based on traditional financing but this option was never brought to my attention in my banking discussions today. This is my first deal above a quad so commercial lending is a new ballpark for me. Thus the post.

469-995-0090

Oh and I do want to hold this as long as possible!  I just didn’t want to use hard money lending for any longer than a year (exit strategy was for the crappy lending terms of hard $ not the deal itself) but I plan on holding until I’m to old to hold it anymore or until they spread my ashes at sea!

469-995-0090

@Jason McGraw , when you were speaking with the banks this week, were you talking to their commercial loan officers or just their normal residential guys? It's not uncommon for smaller banks to have only 1 guy that does/deals with commercial loans on the front end, so make sure you're speaking with the right people. 

Also I'd suggest first asking a bunch of banks commercial guys "what kind of loans do you guys like to give? Or what kind of loans is your bank looking to lend on?" If they're not really interested in smaller Multi's then it's unlikely they'll give you great terms. However if you can find a bank that like to lend on smaller (5-50 unit buildings) multi's then you should have no problem working a deal with the numbers you have. Once you've ID'd 2 or 3 banks that like lending on the type of property you have, tell them, "Hey I am looking for a loan structure like this......" and lay out what you'd like to get and see what they can do. If you're a good enough negotiator you can play them against each other, "you know bank X said they'd do Y, could you match that or help me out?"

Good luck!

Cheers!

excellent advice Donald - I plan to do just that and based on the feedback from everyone, I obviously wasn’t speaking with the right person. 

469-995-0090

@Jason McGraw how did you make out with this deal?

I have a strong feeling that commercial financing is not the same for everybody else that it is for me, which is a huge shame. It shouldn’t be that hard to secure a deal.

Let us know how it went.

I was wondering the same @Chris Connery ! Please let us know how you did with this deal! Plus I live here in Boynton so very curious and hope you got your money for the deal! 

Hey everybody,

Sorry for the delay but it looks like I just wasn't asking the right people the right questions.  Funding shouldn't be an issue at this point but working with the owner on this particular off market deal hasn't been easy.  Lots of red flags including rent rolls etc. but I'm still working on it.  It's an off market deal and the owner has his brother as realtor and they just aren't very open with information critical to the proofing of my analysis step.  

469-995-0090

@Jason McGraw

Most sellers wont be open to giving your access to their records until you can show then you are a serious buyer. 

Get your approval letter from a lender. 

Offer an LOI.

Once the LOI is excepted, then do your due-diligence (walk every unit and audit every lease). The due-diligence is where you will find all the skeletons.

Hey @Jason McGraw if you have any specific questions that the BPers can help with... post them in here! 
What type of red flags are coming up? 

For sure, 'brother as realtor' is a bit of a red flag too! But do keep us posted! We're rooting for ya! 

I wouldn't be so quick to say his brother being his realtor is a red flag.

My father is a realtor.  My best friend is also a realtor and owns a real estate company.

That would automatically make them red flags if they represented me?

A poor realtor is a poor realtor regardless if there is any relation to the buyer/seller.

Originally posted by @Brian Garrett :

I wouldn't be so quick to say his brother being his realtor is a red flag.

My father is a realtor.  My best friend is also a realtor and owns a real estate company.

That would automatically make them red flags if they represented me?

A poor realtor is a poor realtor regardless if there is any relation to the buyer/seller.

I think his point was: "Can I still get a bargain, with his realtor brother hovering over the deal"?... 

Hey guys, 

Just a heads up...I backed away from pursuing the deal for several reasons but the brother as the realtor was a very minor part. I became more and more frustrated that the owner wouldn’t provide rent rolls or a P&L for the property and didn’t seem very eager to actually sell the property. 

469-995-0090

Join the Largest Real Estate Investing Community

Basic membership is free, forever.