Financing on 20 units - Posted by J.D. Stewart
Posted by J.D. Stewart on May 02, 2006 at 15:00:19:
Our little town (25K) had one of its major employers leave town a couple months ago, leaving 1400 people without jobs. Since it was a meat packing plant, most of those jobs were low-paying. As a result, those people left town for greener pastures and the apartment buildings that catered to them are between 75% & 90% vacant. Talk about hurting!
However, as a RE investor, I smell bargains. 98 of those units went up for auction this last weekend (same owner), and none of the bids got to the reserve. On a package of five 4-plexes, there was only one other bidder besides me. High bid was $13,500/unit ($270K). Seller later told me he’d take $15K/unit, so we’re close.
There are 15 2BR, and 5 1BR units, with only 5 rented right now. Of the rest, 1 is ready to move in now. 5 just need cleaning and maybe minor touch-up paint. 1 is totally trashed and needs everything. 3 need carpet, linoleum and paint, and the last 3 need the same but are in the process of rehabbing (everything torn out). I’m estimating $30K by the time the whole project is done. The current owner has put in around $11K/unit during the last couple of years, including new roofs, outside paint, landscaping and a new connecting street for access from 2 streets. Bones are good. Just needs the insides gone through.
Rents are between $325 and $395, about right where they should be. Figuring renting the singles for $315, the lower 2 BRs for $375 and the uppers for $385, total rents would be $7300/month. It’ll cash flow with 50% occupancy and 100% financing. That flow can fix up the rest of the units. By the time it gets up to 90%, it should be making $30K+/year. ARV would double by then.
I have the money to support the project for a few months and start rehabbing the units, but that doesn’t leave me anything for a down. This is a bigger project than what I’m used to, but I do own some commercial properties and SFRs. I have a construction background and can do the rehabbing along with my rentals handyman. Last I checked, my high credit score was 871, so I’m good there. :>) One of my commercial properties is almost paid off, so I can pledge that as well.
This whole project depends on the ability to fill the units. I would market to a better clientele, since they’d be in better shape than before. With below-market rents and possibly some incentives, I should be able to attact quality tenants from other properties.
Any commercial lenders interested?