All Forum Posts by: Account Closed

Assuming the property you are buying will have only limited repairs, AND it will cashflow pretty well after you get it rented, AND  you are living pretty well w/in your means consider the following.  

Personal loan from friends/family - offer a reasonable interest rate on a non-amortizing loan to borrow half the down payment.  If things go well, you won't have to tap what you have left in reserve, and it won't cost you that much in the meantime.  If things go really badly at least you had the reserve, and between what you pull in from normal work and hopefully what the property will generate you should be able to repay the F&F loan w/in a few months to a few years.  

I'm not going to repeat what has already been said, but it's basically a speculation play for a potential buyer.  There is a ton of risk in taking a property like this on, and very little in the way of cashflow to pocket while the appreciation is gambled on.  

I would focus more on the month to month cashflow.  You may have to put more down, but the margin for error is significantly larger.  I looked at your numbers, and I would expect you know the market and the property better than anyone else ever will, but I would be more conservative with the vacancy number.  

Also the inspection report should factor into the decision making - it would uncover any issues that might blow up on you after you buy the property.  

There are already alot of good answers here, but I'll add my two cents specifically on the commercial vs residential financing.  

If you are in no hurry, I would suggest the residential financing because you are more likely to get a longer amortization time period (30yr mortgage) which should make the cashflow on the properties better.  

Given you are looking at taking down several properties at once, a commercial loan would offer the most flexibility and likely speed to purchase, but the terms likely won't be quite as good.  Examples: slightly higher interest rate, and or shorter amortization period.  

You could always use the commercial financing to acquire the properties, then switch to residential if you think you will hold on to them for a longer period of time.  

I would ask a few questions on top of the ones you have already posted.  First, see if you can get a copy of the rent rolls, and then ask WHEN the tenants are paying, and HOW the tenants are paying.  You may discover that while they look occupied, the owner might have to knock on doors to collect rent, and may not be enforcing late penalties or evicting those who aren't paying.  Also get a look at his Schedule E to see what he has been able to collect. 

Those few questions alone would have saved me some headaches and allowed me to negotiate a better price on my apartment building.  

Thanks everyone for responses, @Pete Rosen I hadn't thought to talk to my insurance agent yet, I'll look into it.  

I just discovered that one of my tenants passed away.  Luckily (for me) not in one of my units, but this did get me thinking, someone has likely had this happen IN their unit.  I'm curious to hear about the cleanup process and renovation cost that  you experienced.  

@Jason Hirko  Thanks for responding so quickly.  I'm still weighing the options - the potential "gotcha" factor when they get hit w/ a $75 bill for not paying on time worries me a bit, but it's also additional income.  

I have a few units online now in my building, and then another few becoming available in the next few weeks.  In comparison to the market mine are the smallest, but the second least expensive, so slightly higher priced (b/c they are all newly renovated).  

We've had alot of interest over the past two weeks, but no leases signed so the property manager has recommended a concession strategy to see if that will generate some signed leases.  

Details

Rent $625 + Washer/dryer rental $50/mo  = effective monthly payment $675

Concession $75/mo 

So effective rent is $600/mo (more in line w/ size of apartments in the area and the market with the added benefit of the washer/dryer which many buildings don't have on site) 

Per the lease addendum - if the client doesn't pay by the 5th, they don't get the concession for that month.  

Makes sense, and does provide value, but I wanted to see what the thoughts are on this vs just lowering the rent to $600/mo, without the washer/dryer units.  

All - 

Thank you for the fast responses.  I have a weekly call with my point of contact for the property, and I will be extending our normal time together to cover some ground that clearly needs to be covered.