Million dollar deal

11 Replies

So I've been offered the opportunity to buy a 4 6-plexes at a group discount. I dont have too much info yet except that the rents are $17,200/month and if I were to be able to buy all the units at once I could likely get them for a million bucks. Now - I'm not sure where the heck I'd get the million bucks. I doubt they do commercial loans with 5%- 10% down, but theoretically it doesn't sound too bad.
It sounds like a lot of cash flow especially in CT, but this is also ghetto central - high maintenance, shootings outside, I'd be scared to go there. Something tells me to just wipe it out of my mind right now, but I'm just wondering what would you think? Worth a little more thought?

Commercial will generally lend at 70% LTV, you would need the seller to hold a 2nd which is quite common. You could offer 10% down, loan for 70% and seller 2nd for 20%. You just need to figure out if everything else makes sense.

8)

Minna,

Here's the way I see this deal.

Gross rents: $17,200 per month
Operating Expenses: $8,600
NOI: $8,600

Debt Service: ($1,000,000, 20 yr, 8%) $8,364

Cash flow: $236 per month or $9.83 per unit per month

This is a TERRIBLE deal at $1,000,000! I'd pass!

Mike

Minna,

I'm not trying to be hard on your deal. In fact, I obviously have no stake in whether your deal is good or bad (it's not my money). But the fact is that the deal that you posted is a bad deal, at least if you're trying to make money. It doesn't have to be in the ghetto for the 50% expense number to be accurate.

If you don't believe the 50% expense number, what number do you think is right and how do you come up with that? In the real world, it's not good enough to hope that the expense number is lower. You've got to account for ALL of the expenses or you'll soon be out of business.

With 24 units, you really should have a minimum cash flow of about $2,400 per month. $2,400 per month would have a positive impact on your life. I doubt that $236 would do that. Believe me, $236 is not enough money to deal with all the hassles of 24 tenants!!!

Mike

Originally posted by "MikeOH":
Here's the way I see this deal.

Gross rents: $17,200 per month
Operating Expenses: $8,600
NOI: $8,600

Debt Service: ($1,000,000, 20 yr, 8%) $8,364

Cash flow: $236 per month or $9.83 per unit per month

This is a TERRIBLE deal at $1,000,000! I'd pass!

Originally posted by "MikeOH":
With 24 units, you really should have a minimum cash flow of about $2,400 per month.

But if Minna could scrape together 20% down and get a loan closer to 7%, the debt service would only be $6200 and you'd have your $2,400 per month.

Originally posted by "Minna":
I'd be scared to go there.

That would end the deal right there for me.

From a financing standpoint, you would need to seek a commercial blanket loan---expect to be capped between 70-75% of the aggregate purchase price.

If you have existing properties with available equity, you could do the same thing with a bridge loan.

Regards,

Scott Miller

So, is it not possible to do the 80/10/10 financing that's been mentioned in other posts? 10% down and 10% seller second. With 30 yr amortization on the first and interest only on the second, this looks like:
NOI=$8600
First= $5870
Second=$733
cash flow=$1996
8% on both loans

A bit under the $100/unit/month guideline, but close. At a price of $935,000 and the same terms, its right at $100/unit.

Is this not possible for a property of this size?

The loan configuration you are referring to is not available in a blanket loan format---

Regards,

Scott Miller

Originally posted by "Wheatie":
So, is it not possible to do the 80/10/10 financing that's been mentioned in other posts? 10% down and 10% seller second. With 30 yr amortization on the first and interest only on the second, this looks like:
NOI=$8600
First= $5870
Second=$733
cash flow=$1996
8% on both loans

A bit under the $100/unit/month guideline, but close. At a price of $935,000 and the same terms, its right at $100/unit.

Is this not possible for a property of this size?

So, what's a blanket loan and why does this deal require that? Because its four separate buildings? Would a single building be different? How about a complex with four building? Sorry for so many questions, but I'm really tired of high tech these days.

A blanket loan is a loan program that allows for the financing of more then 1 property/parcel.

Individual property finances are not bound by the same guidelines (and some property types qualify for the program you referenced previously).

Regards,

Scott Miller

Originally posted by "Wheatie":
So, what's a blanket loan and why does this deal require that? Because its four separate buildings? Would a single building be different? How about a complex with four building? Sorry for so many questions, but I'm really tired of high tech these days.