How to finance this one, Ed! - Posted by Gorge

Posted by John on October 28, 2000 at 12:02:10:

George - I think one of the problems here is that you may be stating income and expenses on a monthly basis? If these are yearly numbers, this property is way overpriced and no one is going to take you seriously.

How to finance this one, Ed! - Posted by Gorge

Posted by Gorge on October 27, 2000 at 04:28:06:

Hi Mr. Garcia!

I found about this property not on the market yet meaning there’s no broker %,seller are moving.Asking for$1.8 million, the will negociate a reduction of 6-7%, $1.692,000. It have an assumable for$750,000. I have negotiate for them to carry some but only agree for$300,000.
Rental Income$14,500
Expenses $ 8,278.92 (including $5,705 of P.I.)
Net Income $ 6,126.08
Base on this How much morgage can I get?
Do I need to qualify for the Assumable Morg.?
Can I use the Carryed Money as the Down Payment?
Can I get 100% finance?
I have no colateral, no investor, or equity!
What can you suggest, anything will be appreciated!

How to determine the maximum loan amount - Posted by Jerry

Posted by Jerry on October 28, 2000 at 12:06:42:

Gorge:

I am going to make a couple of ?assumptions,? which could be trouble. However, if this is a real request, then perhaps the following will assist you.
Some questions Mr. Garcia probably need are:

  1. What kind of property, multi-family; office; warehouse; retail?
  2. Is the occupancy stable?
  3. Either way, what is the occupancy level (%)
  4. How old is the property?
  5. Any functional obsolescence? Deferred maintenance?
  6. Do expenses include: Management Fee? Reserves For Replacements?

Assumptions:

  1. Stable occupancy and no need to address a further vacancy factor, IE: Gross is ?Effective Gross Income.?
  2. The numbers you give are ?annual.?
  3. Because of the selling price, assume there is a property manager and reserves are included (cannot tell you how to figure reserves unless you tell us what kind of project this is and also the answer to numbers 4 & 5 above). But, for the moment, will consider reserves are not an issue.
  4. Lender?s amortization period is 25 years and their rate is 9%.
  5. Lender?s required Debt Service Coverage would be: 1.3/1 (130% coverage).

Based on the above assumptions, your Effective Gross Income is: $174,000 ®; Net Operating Income is: $143,000 ®.
Now with these assumptions being correct, we can tell you how much you could expect to borrow, here is the formula: net operating income/required debt service coverage/loan?s constant

Or: $143,000 / 1.3 /.1007 = $1,092,314 9R) $1,092,000

Mr. Garcia was right with his ?Cap Rate? estimate, therefore the value should be (only an estimate): $1,430,000.
Give us the necessary information and we can ?massage? these numbers accordingly.

Wish you well,

Jerry W. Menke

Re: How to finance this one, Ed! - Posted by Ed Garcia

Posted by Ed Garcia on October 27, 2000 at 09:57:59:

Gorge,

You don’t give us enough information about the subject property and I don’t agree with the expenses given or the NOI. If you take the full Gross Income and 10 Cap it, the property is only worth $145,000. Gorge, I don’t think this post is for real, but I replied because you were polite and respectful.

Ed Garcia

Re: How to determine the maximum loan amount - Posted by George

Posted by George on October 28, 2000 at 13:19:04:

Hi Mr. Menke!

Here ar the numbers:
14 units Apartment - 10(2/2), 2(1/loft/2), 2(1/1)
Rental $14,320 + $85.00(Laundry) = $14,405.00/MONTHLY
EXPENSES:(MONTHLY)
Morg.+Interest $5705.00
Tax $1075.50
Insurance $178.42
Trash Serv. $50.00
Landscape $100.00
Repair/Vacancy $200.00
SPA Serv. $50.00
Utilitys $600.00
Interphone $20.00
Management $300.00
Total Expenses -------- $8278.92
Net Income ------------ $6126.08
NOte: The rental can be increse by $600.00 more to bring it to fair for the property. Now have no vacancy and the vacancy rate is less than 5%.
Property have 22 yrs
Let me know if I’m missing something else!
Thank you, Jerry!
George

Re: How to finance this one, Ed! - Posted by George

Posted by George on October 27, 2000 at 20:51:59:

Hi Mr. Garcia!

What other info. you may need to make a good judgment? I could be able to get it! Do you think that asking the seller for some type of document(tax retur for instance) that state the expences may be helpful to you? The information provided before is what the seller gave me. Is there something else that should ask to the seller?

Thank you, again!
George

George: This just doesn’t work!! - Posted by Jerry Menke

Posted by Jerry Menke on October 28, 2000 at 15:26:28:

George:
My friend, you need to find something a little less ambitious.
It would appear the asking price is too high, however, even if it was in
line, if you are lacking any funds for the down payment, closing costs and escrows, you need to
lower your standards. Check with Mr. Garcia on buying SFR?s with
zero down - and go from there. Grow your ability, and pay your dues.
Slowly, you?ll get there.
Here?s how your project laid out:

$125,719 (noi) / .1075 (cap rate) - (the amort. period was reduced to 20 years due to age) = $1,171,000
Annual income/expense analysis current
Gross income per unit annually $12,347.14
Net income per unit annually $ 8,980.00
Gross income per unit monthly $ 1,28.92
Net income per unit monthly $ 748.33
Number of units in project 14

Income

Leases $171,840.00
Laundry $ 1,020.00

Total gross income $172,860.00
Vacancy and collection loss $ 8,643.00
Effective gross income $164,217.00

Operating expenses

Taxes $12,906.00
Insurance $ 2,141.04
Management fee $ 8,210.00
Trash Removal $ 600.00
Landscape/Lawn Maintenance $ 1,200.00
Repairs/Maintenance $ 2,400.00
SPA Service $ 600.00
Utilities $ 7,200.00
Interphone $ 240.00

Total annual operating expenses $ 35,497.04
Reserves for replacement $ 3,000.00
Annual net operating income $125,719.96
Effective annual N.O.I. $125,719.96

Being this far off on the asking price, leaves little room to negotiate on this deal. With a subordinate loan of the $300,000 and a first mortgage of the difference (if you were to buy it for the value above) your total DSC would exceed the NOI. Don’t buy based on “potential income” unless you have money to carry a project through.

Sorry.

But wish you well on your next one.

JWM