Help with evaluating 20 unit property - Posted by Anne

Posted by Anne on April 04, 2006 at 15:58:48:

Ben,

Thanks for the response. 9% cap on the NOI makes sense. I didn’t not consider assumption (more familiar with residential financing more than commercial). The owner lives a few hours from the property and didn’t likely manage it properly, which partially explains the vacancy rate. Thanks again for your help!

Help with evaluating 20 unit property - Posted by Anne

Posted by Anne on April 02, 2006 at 15:16:53:

Just got a call from a motivated seller. He has two 10-unit townhome style apartments, with two separate 1st mortgages for each set of 10 units (20 units total) at prime + 0.5%. He has a 50% vacancy rate (!) and is 3 months behind on both mortgages and just looking to get out. He lives out of the immediate area and doesn’t have time to manage the apartments.

A few questions:

  1. Can this property be short saled?
  2. What cap rate/NOI should we be looking for?
  3. Would any lenders be willing to finance this deal with no doc and credit scores 730-780? How much money would we be needing to put down?
  4. Any general suggestions on how to approach this deal?

Any help would be extremely appreciated. Thank you in advance!

Re: Help with evaluating 20 unit property - Posted by Ben

Posted by Ben on April 03, 2006 at 08:57:03:

I really think to need to know more about the current debt situation. Do the loans have to be assumed? If so, how much is debt service? Is there a pre-payment penalty? How much? If the loans don’t have to be assumed, then I would write an offer based on a 9% capitalization rate. In other words, figure out what the NOI is, then write an offer based on a 9% cap rate.
This may be an extremely low price… but you are paying for an income stream. If the owner could have the place 90% occupied, wouldn’t they? Write your offer and if they don’t like it, move on to another deal.

–Ben