Help me with apartment purchase - Posted by CAL
Posted by CAL on April 15, 2007 at 12:41:33:
I am in the process of purchasing a 16 unit apartment building and I would like to get you guys to analyze it with me. This property has a tremendous upside because the current rents are way under market rent, but it actually seems to be a good deal even at the current rent. The entire complex is in excellent condition. All of the units are individually metered for water, electricity and gas. Here are the numbers:
Effective Gross Income (after 5% vacancy) - $50000
Expenses (Tax, insurance, maintenance, etc.) - $10,500
NOI ? $39,500
The owner is willing to do owner financing with 20% down but the terms are not good at all. He is a hard money lender, and he wants to do the financing at 14% and then have me refinance once I get established and get my rents up. After running the numbers with the 14% I immediately said there was no way I could do this because it will cause me to have a negative cash flow. But, I did tell him that if he would add money to the selling price and escrow it for me to use as coverage for my cash loss for the six months I may be able to do the deal. He agreed to this. My assumption is that after I get rents up, the property will appraise at well over 500K, allowing me to get ALL of my cash back with the refinance. So, while it would produce a negative cash flow for 6 months, after the refinance, I would have no money in the property and it should be cash flowing (after debt service, expenses and everything) around $2000 per month.
I feel pretty good about this deal, with only one exception. I am new at commercial real estate (I have done several residential) and I want to take my time with due diligence. The seller wants to move fast. I am a little nervous about that, but the deal looks good to me.What do you guys think of this deal?