Posted by Jim_MA on March 26, 1999 at 15:35:58:
Dwight,
If i use the info provided and apply 40% expenses and 3% vacancy to the noi i do not see the kind of cash flow your looking for. What is the income and the expenses?
Need help and advice on putting apartment deal together! - Posted by Dwight
Posted by Dwight on March 26, 1999 at 10:04:23:
I’m looking at a 24 unit apartment building and I need information on how to finance it. The purchase price is $775,000. It has a NOI of $98,000. If possible I want to purchase it with no money down and also include the $20,000 closing costs in the financing. So actually I need to finance $795,000. The seller will only take back a note for the downpayment if it can be collateralized by a piece of property other than my home which I don’t have so that’s not an option. I’ve read that you can rent collateral. Has anyone had experience in that? What I’d like to do is purchase it with no money down while maximizing the yearly income out of it. Another words with the first and second mortgages on it I’d like to clear $35,000 a year in income out of it if possible. My first question would be where and how can I obtain a down payment loan, it would need to be $100,000 if I got a first for 90% of the purchase price. The downpayment loan would have to be $200,000 if I got a first for 75% of the value. I read about a downpayment loan called a “Standing” loan. Supposedly you can take it for 5,10, years where by you make no payments on it until it’s due and then you pay accumulated interest and principle. This would be ideal for me because it would maximize the yearly cash flow out of the building. Also I’ve read of a “Piggyback” loan that would also provide a down payment for the property. If anyone out there has information as to these loans and where I can obtain them I would appreciate it. The property is located in MD.
From those creative minds you guys got I would appreciate any ideas on how to put this deal together. Thanks.
Re: Need help and advice on putting apartment deal together! - Posted by Dave T
Posted by Dave T on March 28, 1999 at 23:09:17:
Where are you getting you first mortgage financing? If you are planning to use a bank commercial loan, be prepared for some rigid rules and underwriting guidelines that will probably not allow you to make this deal.
First, assuming that a NOI of $98K can be verified, The most a commercial loan officer will probably give you for this deal is $657,352. The loan officer will want a debt coverage ratio of about 1.3. So this means that only $75,384 of your NOI will be considered for debt service. This means that you will only have $6282 per month for your mortgage payment. Assume that you get an interest rate of 8% and a 15 year amortization. This means that the maximum loan amount possible with a $6282 monthly payment is 657,352.
Now for some harsh news. The commercial loan officer will probably not allow a longer amortization because this is not a new construction. Their rules assume that an existing apartment complex has a shorter useful life than a single family residence, therefore shorter loan periods. The second item of harsh news is that the loan officer may allow you to support this deal with seller financing, but he will still want to see you put your own money into this deal. I talked to one loan officer that would allow 80-10-10 on a $1,000,000 loan, but would not allow seller financing at all on $250K.
The third bit of harsh news is the appraisal. Even if the bank will give you $657352 to purchase this property, the appraisal will probably need to come in at $876,500 or better. The bank will probably have another underwriting rule that only permits them to loan a maximum of 75% of the appraised value or 80% of the purchase price, whichever is less.
Therefore, in your scenario, even if the appraisal comes in at a high number, your purchase price of $775K means that the bank will only loan you a maximum of $620K. On this loan amount the monthly payment will be $5925. Remember that you can use only $6282 per month for debt service (the 1.3 ratio rule). Therefore, you will only have $357 per month left over to make payments on your seller financed second mortgage.
As if I did rain on your party enough, MD landord- tenant law requires that you keep the tenant’s security deposits in a separate escrow account, and you are required to pay the bulk of the interest earned on the account to the tenants. Therefore, you can not use the tenant’s security deposits as a source of funds for your deal.
Re: Need help and advice on putting apartment deal together! - Posted by Dave T
Posted by Dave T on March 28, 1999 at 23:06:34:
Where are you getting you first mortgage financing? If you are planning to use a bank commercial loan, be prepared for some rigid rules and underwriting guidelines that will probably not allow you to make this deal.
First, assuming that a NOI of $98K can be verified, The most a commercial loan officer will probably give you for this deal is $657,352. The loan officer will want a debt coverage ratio of about 1.3. So this means that only $75,384 of your NOI will be considered for debt service. This means that you will only have $6282 per month for your mortgage payment. Assume that you get an interest rate of 8% and a 15 year amortization. This means that the maximum loan amount possible with a $6282 monthly payment is 657,352.
Now for some harsh news. The commercial loan officer will probably not allow a longer amortization because this is not a new construction. Their rules assume that an existing apartment complex has a shorter useful life than a single family residence, therefore shorter loan periods. The second item of harsh news is that the loan officer may allow you to support this deal with seller financing, but he will still want to see you put your own money into this deal. I talked to one loan officer that would allow 80-10-10 on a $1,000,000 loan, but would not allow seller financing at all on $250K.
The third bit of harsh news is the appraisal. Even if the bank will give you $657352 to purchase this property, the appraisal will probably need to come in at $876,500 or better. The bank will probably have another underwriting rule that only permits them to loan a maximum of 75% of the appraised value or 80% of the purchase price, whichever is less.
Therefore, in your scenario, even if the appraisal comes in at a high number, your purchase price of $775K means that the bank will only loan you a maximum of $620K. On this loan amount the monthly payment will be $5925. Remember that you can use only $6282 per month for debt service (the 1.3 ratio rule). Therefore, you will only have $357 per month left over to make payments on your seller financed second mortgage.
As if I did rain on your party enough, MD landord- tenant law requires that you keep the tenant’s security deposits in a separate escrow account, and you are required to pay the bulk of the interest earned on the account to the tenants. Therefore, you can not use the tenant’s security deposits as a source of funds for your deal.