10 units, help! - Posted by JC

Posted by Al Miller on January 09, 1999 at 14:06:44:

I agree. Find a deal. The last 9 unit bldg I bought
was an underrented FSBO and I luckily got it the 1st
day the ad hit.
Bought it for $425,000 and sold it 7 months later for
$625,000 paying an agent 2 1/2%.
If you don`t buy low or with room to advance rents
forget it. Units can be a real pain just to sit there
and break even or pay for your tenants to live there.

10 units, help! - Posted by JC

Posted by JC on January 08, 1999 at 11:27:05:

I found a 10 unit that is free and clear. The owner is a doctor and he moved two hours away and he just wants out. He is open to anything. I have no cash and I would like to know how to structure a deal. Asking price:$300K. Rent is 350 X 10 = 3,500/month. Any hard money lenders in the Chicago area? Also, is it posoble to get 60% of the value through a hard money lender and get a note from the seller for the balance? I need help! Thanks…

Re: 10 units, help! - Posted by JPiper

Posted by JPiper on January 09, 1999 at 03:19:51:

Just in case the below posts aren’t clear…there is no deal here based on the information you’ve given.


Re: 10 units, help! - Posted by JohnBoy

Posted by JohnBoy on January 08, 1999 at 14:56:45:

Is it possible to get 60% from a hard money lender and get the seller to carry the 40% as a 2nd? Sure, its possible, but a hard money lender is going to charge you 5 - 10 points plus 12% - 18% interest. So lets take a look at this deal based on your numbers.

60% of the purchase price would be $180,000. If a hard money lender charges you 15% interest only, your monthly payment would be $2250 on the first. Assuming the seller will carry back 40% ($120,000) at 7% amortized over 30 years your monthly payment on the 2nd will be $798.36. $2250.00 + $798.36 = $3,048.36 PI.

Now you need to add in the taxes and insurance. You didn’t give any other numbers on this deal, but after adding in the taxes and insurance your going to be at a negative cash flow.

Now lets assume the seller would be willing to finance 100% of this at 8% interest amortized over 30 years. (Unlikely, but lets figure it anyway to get a clear picture of this deal). $300,000 at 8% amortized over 30 years would make your monthly payment $2201.29 PI.

You don’t say what the taxes are so lets assume the property will assess at $300k. This would put your taxes roughly at $585 per month. (Find out what the current taxes are)

$585 + $2201.29 = $2794.29

The cash flow at 100% occupancy is $3500 per month. $3500 - $2794.29 = $705.71 left over to pay all your expenses. Using a hard money lender would leave you with a negative cash flow of $133.36 per month with NO money to pay expenses.

What are all the expenses??

You need to figure in the,

Management (even if you manage it yourself you still figure in this expense)
Trash removal
Snow removal
Repairs & Maintenance
Deferred maintenance

As a general rule expenses should be figured to run 40% - 50% of gross income on this type of property. Using 45% for total expenses your NOI would be $1925.00 per month. Out of the $1925 per month you would need to cover your loan payments and whatever is left over would be any profit.

If you used a hard money lender like in this example your PI payment on the 1st & 2nd would be $3,048.36 PI.$3048.36 - $1925.00 = $1123.36 negative cash flow. Using 100% seller financing at 8% your PI payment would be $2201.29. $2201.29 - $1925.00 = $276.29 negative cash flow.

If you want to make any profit on this each month your going to either need to put a lot of money down or lower the purchase price low enough to make this work or a combination of both and/or raise the rents high enough to cover your expenses.

How much do you need to profit off each unit per month after all your expenses and debt service is paid for?? $5, $25, $50, $100 per unit?? Figure your profit you need each month to justify commiting to this deal, then deduct all your expenses and whatever is left over will be the most you can afford to pay on the monthly payments. Don’t skimp on your expenses or you will be at a negative in the near future.

Re: 10 units, help! - Posted by Andrew Smith (Phila)

Posted by Andrew Smith (Phila) on January 08, 1999 at 14:33:35:

$350,000 for a property producing only $3,500.00 a month seems like a lot. That’s only $42,000 gross income. What are the expenses for the property - other than any mortgage considerations? Guessing taxes to be $5,000.00 and insurance to be another $1,500.00 you need to know what are the maintenance expenses, utilities, trash collection, etc. You also need to factor in a capital improvements allowance, a management fee and a vacancy factor. What are you thinking of offering?

Re: 10 units, help! - Posted by John(NH)

Posted by John(NH) on January 08, 1999 at 13:57:16:

If he’s open to anything, why not ask him for 100% financing? If he balks at giving title that way, offer a very favorable (to you) lease option. You have many choices open to you here.


Re: 10 units, help! - Posted by Eric (NH)

Posted by Eric (NH) on January 09, 1999 at 24:06:30:


I agree with JohnBoy; this deal looks too skinny. In fact, I recently purchased a ten unit that was offered at 300K; I bought it for 277K. However, the total rents are $5,755 per month, and half of the units are under market rent. Although I have some deferred maintenence costs coming almost immediately (2K for deck repairs, 4K+ for roof repairs), I should still clear at least 1.0-1.5K per month after factoring in all of my expenses.

You need to get from the seller a full listing of his expenses (and a recent Schedule E, if possible). Don’t even consider this property if the CAP is below 10%, as it likely is given that the gross multiplier is over 7. If this guy is a doctor, he may well be fairly shrewed. Consequently, I doubt that this deal is a candidate for a lease option. If your capital is that limited, you probably should stick to smaller properties and truely motivated sellers.

Eric (NH)