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,

Insurance

Vacancy

Management (even if you manage it yourself you still figure in this expense)

Heat

Electric

Water

Sewer

Trash removal

Snow removal

Landscaping

Repairs & Maintenance

Deferred maintenance

Misc.

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.