Can I get financing on this 12 unit condo deal? - Posted by Nate

Posted by Nate on July 23, 2007 at 10:25:06:

Thanks for the post, Penny. I read Ray’s article and wondered if the operating expenses might be more for an apartment complex than three, four unit condo buildings. There are no common areas or offices to maintain. Utilities are paid for by the tenants.

Can anyone with condos comment on how you plan for opertating expenses?

There is clearly a lot more research that I need to conduct. I’ll continue to educate myself.

Thanks again.

Can I get financing on this 12 unit condo deal? - Posted by Nate

Posted by Nate on July 22, 2007 at 17:33:44:

Hi -
I am considering trying to purchase a set of 12 condos. The asking price is $800k. The income on the property is just over $105k. The property is in an established suburb of a major metro area. I think it will produce around $30K in net income after debt service and operating expenses. The property appears to be in good condition, but due diligence to prove this out would obviously be part of the process.

I have not purchased rental properties before, although I have bought and sold several houses for investment purposes and am a realtor on the side. I have excellent credit (middle credit score of around 800). 25% of my monthly income is committed to debt payments (housing and cars). I make over $100k annually.

I have $50K I can put toward the purchase of this property including down payment and closing costs. Incidentally, I will get the buyers agent commission at closing if I purchase it.

Questions:

  1. Can I get financing for this property,
  2. what’s the best approach for financing, and
  3. would you consider FHA financing?
  4. if necessary, I may be able to get a private lender to finance 10% as a second mortgage.
  5. is it reasonable to ask the seller to finance a second?

Thanks in advance.
Nate

Re: financing on this 12 unit condo deal? - Posted by Matthew

Posted by Matthew on July 23, 2007 at 09:47:05:

Nate-
They both make sense however there are 90% AND 95% financing programs available. they are not hard money. they do offer the ability to get in with lttle $.So it’s up to you to see if it makes sense.

Can I get financing on this 12 unit condo deal? - Posted by Nate

Posted by Nate on July 22, 2007 at 19:12:58:

BTW, I made several assumptions in this scenario that may be inaccurate due to lack of experience. I think I need to do more research.
Assumptions are (tweaked a little from original post):

  • Income = $12X$800/month=$115200k/annual
  • Vacancy = 7% for ($8064) (income after vacancy=~$107k)
  • Operating expenses estimate: $25k/yr (taxes $16k)
  • Debt services of : ~$57k ($715k/average 7% loan/30yr note)
  • Total pretax cash flows ~$26k.

I think the taxes are about right. Not sure about the rest of the assumptions. Are these anywhere near correct?

Thanks in advance.

Re: 12 unit condo deal - Posted by Penny

Posted by Penny on July 23, 2007 at 08:47:47:

See the following article - Ray Alcorn analyzes a highly leveraged apartment building. Many of the same principles will apply for you.

Some more things for you to check in your numbers:

Vacancy - what are the vacancy rates in your market area compared to your assumption?

Operating expenses - you are assuming about 20%-25%. This seems low. Look at the deal assuming a more typical to worst case. Try 40%-45%.

Debt service - a 12 unit is considered commercial, so a 30 year amort is unlikely and the rates will be higher than residential. A reasonable assumption for your calculations would be 25 years at prime assuming you are borrowing from a bank. With good credit, you could probably get a little lower rates.

For commercial financing through a bank, it is typical for them to loan up to 80% LTV. The least you can expect would be 10% of your own down, 10% seller carry second, and 80% first through lender. There are other ways of creative financing discussed all over this site, but this is common for commercial.

Hope this helps, I’m sure others will have good feedback for you, also.