Multi Family - Posted by Jeff- MI

Posted by Jeff on July 30, 2007 at 13:55:48:

Penny,

Thanks for the input. I have previously read that article and have learned first hand (by crunching #'s) that 100% = 0 or negative cashflow almost all the time. I have had a difficult time finding a lender in my area that can walk and chew gum let alone give me info/ advice on a commercial loan.

Multi Family - Posted by Jeff- MI

Posted by Jeff- MI on July 30, 2007 at 11:32:28:

I need some real world advice on purchasing a 12 unit apartment building. I have been trying and trying and trying and … (well you get it ) to break into r/e investment. I have had several properties under contract and for one reason or another they fell through. I am about to close on a SFH that my wife and I will owner occ. It is an REO and we purchased it at 60% ARV.

Once I close I will have better credit and access to $50k in equity (and still keep the house at 80% LTV). I also have an investor that is willing to invest $40k on a rental poperty.

My question is what is the best way to finance a multifamily property? There are several properties listed ranging from 8 units for $400k to 22 units for $850k. Would I try and get conventional commercial funding? If so what are the requirements? I have a very high DOI (especially after the purchase of the house). Is hard money an option for multi family?

Any and all suggestions greatly appreciated and if anyone could reccomend any helpful resources (books, programs, etc) regarding commercial financing that would be great.

Thanks … Jeff

Re: Multi Family - Posted by Ed Garcia

Posted by Ed Garcia on July 31, 2007 at 06:36:16:

Jeff,

Youâ??ve been given some sound information by both Patrick and Penny and now letâ??s put it into perspective, which allow us to know what we need to do.

Patrick told you some basic requirements of the commercial lending community. However one of the easiest things to get around is the 2 years management experience requirement that can vary from lender to lender with 20 to 30 % down.

And speaking of the down, there is a lender called Interbay Funding that will allow you to purchase a commercial property with 10% down and a preferred 20% seller carry-back. This can be negotiated depending on the deal. Interbay is one of the few lenders that allow a seller carry-backs and thatâ??s why I share them with you. Most brokers who deal in commercial financing are familiar with Interbay.

As far as Penny sharing what Ray Alcorn has to say about 100% financing, Iâ??m sorry but I donâ??t completely agree with Ray.

When doing any deal, the numbers tell us what to do.

If my intention is to do 100% financing, then I better know what Iâ??m doing and steal the d@m property. As far as Iâ??m concerned, it doesnâ??t take any talent to pay retail for real-estate. I promise you I can put a deal together with 100% financing and it will pencil.

Ed Garcia

Re: Multi Family - Posted by Patrick S. Lawson

Posted by Patrick S. Lawson on July 30, 2007 at 13:04:15:

Lenders generaly want:
High personal credit scores (660+)
2 Years property management experience
20% Downpayment.

Lenders don’t care so much about your personal DTI. They are more concerned with the properties DSCR (debt service coverage ratio). But personal financials and credit are considered by many. This is part of the “common sense underwriting” approach…if you can’t manage personal financials and credit what is there to indicate that you can manage the property.

Re: Multi Family - Posted by Jeff

Posted by Jeff on July 31, 2007 at 07:52:30:

Ed,

Thanks sooo much for the input. I spoke with my investor (who is also my friend) yesterday and we are both very excited to make our first deal happen. Can you recommend any good reading on the subject of commercial financing or multi family cash flow? Thanks again for your input I always pay close attention to what you tell people.

Jeff

Re: Multi Family - Posted by Ed Garcia

Posted by Ed Garcia on July 31, 2007 at 06:33:17:

Jeff,

Youâ??ve been given some sound information by both Patrick and Penny and now letâ??s put it into perspective, which allow us to know what we need to do.

Patrick told you some basic requirements of the commercial lending community. However one of the easiest things to get around is the 2 years management experience requirement that can vary from lender to lender with 20 to 30 % down.

And speaking of the down, there is a lender called Interbay Funding that will allow you to purchase a commercial property with 10% down and a preferred 20% seller carry-back. This can be negotiated depending on the deal. Interbay is one of the few lenders that allow a seller carry-backs and thatâ??s why I share them with you. Most brokers who deal in commercial financing are familiar with Interbay.

As far as Penny sharing what Ray Alcorn has to say about 100% financing, Iâ??m sorry but I donâ??t completely agree with Ray.

When doing any deal, the numbers tell us what to do.

If my intention is to do 100% financing, then I better know what Iâ??m doing and steal the d@m property. As far as Iâ??m concerned, it doesnâ??t take any talent to pay retail for real-estate. I promise you I can put a deal together with 100% financing and it will pencil.

Ed Garcia

Re: Multi Family - Posted by Jeff

Posted by Jeff on July 30, 2007 at 13:11:58:

Well I fit most of that criteria with the exception of the property management. Some of the numbers I have been running are giving me a conservative 14% ROI in the first year.

I was under the impression that commercial loans usually wanted 10% down???

Re: Multi Family - Posted by Craig Grella

Posted by Craig Grella on August 01, 2007 at 20:20:27:

Try these books:

What every real estate investor needs to know about Cash Flow by Frank Gallinelli

The Complete Guide to Real Estate Finance for Investment Properties by Steve Berges

The complete guide to buying and selling apartment buildings by Steve Berges

Good luck,

Craig

Re: Multi Family - Posted by Penny

Posted by Penny on July 30, 2007 at 13:47:57:

Commercial lenders typically finance 80% LTV. They want to see the investor have something at stake in the deal, preferrably 20% but usually at least 10% - so it is possible to have the seller carry a 2nd for 10% and the buyer put down 10%. However, the property income needs to support both 1st and 2nd payments combined and still meet the DSCR that Patrick talked about.

See Ray’s article on highly leveraged deals. In this article, Ray analyzes an apartment building leveraged at 100% financing.

Re: Multi Family - Posted by Jeff

Posted by Jeff on August 02, 2007 at 04:52:06:

Thanks Craig