Posted by Jim on October 07, 2003 at 04:56:00:
Hi Rick,
It’s Jim I figured out what property you guys are trying to buy. I’m showing it to my clients tomorrow. They’re thinking about offering around 800k.
Just Kidding, GOOD LUCK! I’ll talk to you soon.
22 unit—advice needed - Posted by Rick in Erie
Posted by Rick in Erie on October 05, 2003 at 10:37:08:
Venturing into first commercial property–here’s the details: 22unit townhouses, 2bdr. 1.5 ba. each. Built in 1974. Good condition overall, mostly brick. Monthly income of $10,200 (below market rents, that # could increase to $12000 in a few years easily) $1250/mo taxes, $365/mo insurance, tenants pay all utilities. Good area, about 5 mi. from the city, and the area is growing. Basic set up—2 bdr w/ full bath 2nd floor, liv. rm and eat-in kitchen w/ 1/2 bath 1st floor, full basements that are dry, and can be used as addl bedroom/office/etc Most units remodeled with newer carpet, paint, linolium, etc. Asking price of $850,000—planning on bidding closer to $700000----unlisted, owned by a realtor and her husband who haven’t lived together in 5 years (kind of divorce sale). They will consider owner financing (up to 100%)—I would like to get the property in my and my partners name, so was thinking 80% bank 20% owner. Looking at the #'s I figured about $1700/mo profit using current rents and 750k/7%int/15yr----(may be able to do 100% bank financing). I have one 2-unit now, my partner has 6 (all sfh’s and 2-units) We have been researching the market for about 2 years and are familiar with the area.— any ideas, thoughts, questions would be greatly appreciated. Thanks in advance, Rick
Re: 22 unit—advice needed - Posted by Gregory
Posted by Gregory on October 14, 2003 at 12:31:45:
Okay, I’m not quite an invester yet, but have a B.A. in Finance and am actively researching real estate investing and saving my dollars. Gonna do a quick Analysis on your proposal.
I will assume you purchase this property for $775,000 (which is an even split between $700k and $850k), putting 20% down and financing the property @7%/15 yrs.
Your down payment will be $145,000, and you will finance $580,000 with a debt service of $5,213/mo; or $62,556/yr.
You claim montly income is now $10,200 but you feel it is below market and that you can increase it to $12,000/mo over the next few years. I’m going to be conservative and use the current figure for my analyis.
Monthly Rent: $10,200
Annual Rent: $122,400
Less:
Expenses*: $67,320
Mortgage: $62,556
AR-(Exp+Mort): $4,764
Less:
Taxes (32%): $1,524
After Tax Profit: $3,239
ROI: 2.23%
And when you can/do get the rents up to $12,000 a month, your ROI soars to 7.81%.
2.23% ROI does seem a bit low, but if any of the above changes for the better, your ROI will go up correspondingly. For example, you may get the units for less than $775, or you may qualify for a lower APR on your debt service.
Take this with a grain of salt, but I belive it is a reasonable breakdown of what you can expect.
Re: 22 unit—Why 15 years? - Posted by Dan
Posted by Dan on October 12, 2003 at 11:53:04:
Hi Rick,
Sounds like a good opportunity. Why are you looking for 15-year financing instead of 20 or 25? Also, what’s the current NOI?
Re: 22 unit—advice needed - Posted by Dave
Posted by Dave on October 05, 2003 at 12:11:41:
I am familiar with the lenders in Western & Northwestern PA (I am from PGH) Lenders will generally want you to have at least 10% down from your own funds with the balance made up with seller financing. You may find a few exceptions with strong personal financials, excellant credit and a good relationship with a small local bank.
The other alternative would be to blanket the other properties, using available equity (generally 80% of appraiser minus outstanding mortgages) in lieu of cash downpayment.
You should also be able to get 6.25-6.5% for 15 years with a local lender or perhaps a longer amortization via a conduit.
Make sure you have figured in management fee, and replacement reserve and market vacancy rate into your NOI calculations before heading anywhere to get a loan.