Crazy potential equity!Can this be done? (long) - Posted by dknj23
Posted by dknj23 on July 12, 2003 at 01:16:31:
Here is the situation. I have come across a seller that would like to sell 3 units in an apartment building of 66. The sale is contingent upon all three units being sold together for 100k whereas individually they would go for a total of 230k.
Now here’s the kicker. The three units are all rent controlled and are being rented out to the elderly. Various ages late 50’s, late 60’s and 80’s.
If i purchased this unit for 100k i would have a negative cash flow of about -$200 a month after all expenses and piti.
Obviously this seller knows that he is selling at a steep discount because rent can not be raised hence fewer buyers. Unless these tenants break the term of their lease by paying consistently late or pass away, there is no way rent be increased to market level.
If all three units were vacated and rent was raised to market level than I would have a cash flow of around $600 a month which is substantial.
So here is my question. I do not want to wish that the current tenant pass away because that is bad karma even though that would be the quickest way to raise rent. So with that in mind, if the current market comp for all three units combined is 230k and I buy it for 100K will the mortgage company instantly give me equity of 130K?
Being that I will have negative cash flow on these units can I cash out some of this equity so I can continue to buy other units that can offset this negative cash flow?
What mortgage lenders would allow me to cash out of a investment property? do they do this? i know if its owner occupied you can refi cash out but i’m not sure about rental props.