10 unit - Easy no money down deal?

15 Replies

10 unit building in a decent part of town. Gross annual rents are $52,000 (tenants pay utilities). Asking price is $170,000. No, that isn't a typo. Cap rate is 31%.

I doubt this one will last long on the market. I don't have enough capital to put 10% down, but I am thinking of offering $180,000 if the seller will carry back a 2nd mortgage at $18,000. I have seen multiple places online offering 90% LTV commercial financing with subordinate financing OK.

10% seller @ 7%
90% mortgage @ 7%
Estimated monthly payments of $1200 P+I.
Expenses estimated at 40% gross = $1720
Gross monthly rents = $4300

4300 - 1200 - 1720 = $1380/mo. = $138/unit/mo. cashflow

Am I crazy or does this sound completely doable? Would I be crazy not to put in an offer sight unseen ASAP?

Hello? :shock:

If your market is strong at least put a contract on it and assign it to someone for a fee. Is it listed with an agent or is it a private sell? If its in a decent part of town, and there isn't anything MAJORLY wrong with the property or its at least currently rented for those numbers and its not proforma then I would buy it NOW.

Actually I would be very surprised if its not gone by tomorrow if it was a listed property. You probably should have been driving over to it to look at it rather than typing on the forum.

On a purchase of that size I would always call asap and go look at the property asap. Get as much information about the property as soon as you can and get your offer in there. Even if they can't meet you, go look at it. Research it and have your numbers in your mind, and if its a good enough deal (and if your comfortable with the risk) make your offer without seeing the insides. When you come across a potential deal, do as much as you can as soon as you can. If you don't I will guarantee you someone like me will be, and they will beat you everytime.

One thing, though. Its not a 31% cap rate. Capitalization rate factors in ALL expenses except the mortgage payment. It would be more like an 18% cap, which is still VERY good.

I'll speak to the financial aspects:

1. Common commercial loan configurations:
a. 100 CLTV (OO-NO DOC)
b. 97 LTV (if OO-FULL DOC)
c. 95 CLTV (if NOO-FULL DOC)
d. Many 90 LTV to choose from (STATED and FULL DOC available)

2. I'm not aware of any loan programs that allow for the configuration you are suggesting (90% Lender 1st + 10% Seller 2nd)---I'd be curious to learn what you come up with...I offer a Commercial NO DOC program that allows for a 80/10/10 configuration (80% Lender 1st + 10% Seller 2nd + 10% Down Payment) which is a close proximity.
3. If this property is < 1KK, your reference rates are on the low side.

Regards,

Scott Miller

I'd want to see some info (proof) about vacancy rates. I've seen lots of multiunits that aren't filled. If just 3 of those units are vacant your gross rent drops to $3010. I'd also want to know expenses. You say 40%, others here would argue 50%. If it turns out to be 50% of gross, or $2150, you're at $860 net (closer to 6% cap), subtract your $1200 mortgage payment and you are suddenly losing $340 a month. You might say, well there's no way three units (on the average) would sit empty, but that's not that unusual in some buildings. I've actually seen lots of 100% empty quads, still listed on the MLS as "4 x $550/month" rent.

Right, Ryan. My bad on the cap rate calculation.

The listing claims the property to be fully rented, but I'll request the financials and current leases.

As far as the financing, thanks for the info Scott. It was at romaxcommercial.com that I found the 90% LTV, Secondary financing allowed product. I am going to look into it today. When you talk about No Doc/Full Doc commercial mortgages, I was under the impression that commercial lenders will look at the property alone to determine whether the income it produces will cover the debt service by >120% and that my own personal income is irrelevant. Is this not true?

Thanks for all the feedback. I am going to inquire about this property this morning.

Wakefield,

First, let's look at the real numbers.

Gross rents: $4,300
Operating expenses: $2,150
NOI: $2,150

Mortgage: (commercial, 20 yr, 7.875%, $180,000) $1,500

Cash flow: $650 per month or $65 per unit per month

The cash flow is a little low, but not terrible.

All this assumes that NO REPAIRS are needed. If that's true, then this deal might be worth looking at. If a lot of repairs are needed, then this is probably not a good deal.

Also, this is a low income building (based on the rents). The tenants will probably be marginal, with more evictions and problems than higher income rentals.

I would also want to see the leases and check the rents (and the tenants) based on that info. Owners almost always are overly optimistic about the income.

Finally, as Ryan said, if you find a great deal (this isn't one), you've got to look at it NOW! When I get a call for a great deal, I drop what I'm doing and go look at it right now. About a month ago, a local investor became very motivated to sell and called me about two houses. She wanted $25K for each and I knew that I could rent them for about $550 each and that the market value was about $50K each. I asked her if we could meet in 1/2 hour. Was it worth dropping what I was doing to pick up $50K in equity and $200 per month in cash flow? Yes! I spent ten minutes looking at each house and we went to a local restuarant/bar and signed the contracts (which I always have with me). The point is that this is what your competition does.

Mike

Ah, yes, I forgot to mention that the rents are below market. They are at around $425/mo each, and should be at least $525 possibly even higher.

Will report back once the realtor gets back to me. I'm hounding his voice mail.

Compared to 95% of the country, I live in a very strong market to cash flow on properties, and in my area if that property needed no MAJOR repairs (no more than 10-15K to get all the units rented and decent looking), I could have easily sold it for $200,000 within 30-45 days of putting it under contract, probably even $210,000.

If your market is even just not completely in the toilet right now, that could have been $30,000 to $40,000 in your pocket.

And that folks is how you make money wholesaling.

Sorry for asking this, but I'd like to know what LTV stands for and what does it mean.

New here...so you'll have to deal with my ridiculous questions until I come up to speed with the regulars.

Thanks.

Originally posted by "Rehab702":
LTV = Loan To Value

If a bank will loan at 80% LTV and the building is worth 100k they will loan 80% of that or 80k.

8)

Oh ok...simple enough. Thanks for the clarification.

So if you were to take on that loan, could you take an addtional loan for the remaining 20%? Piggyback it? Thus, keeping you from having to put down any down payment.

I am also a member of FlyerTalk forums. There are even more random acronyms there. They have an FAQ which defines all of these acronyms. I'm surprised that this site doesnt (seem to) have one.

As a newbie here, there are many acronyms I do not recognize.