Structuring a purchase of an 8-unit building - Posted by Craig (IL)
Posted by Craig (IL) on July 14, 2007 at 12:51:18:
Two questions about buying an 8 unit building. Although I have a few SFHs, a duplex, and a triplex, I have never purchased at the commercial level before.
Question #1 is your value of the property. With gross rental receipts of the six currently rented units is $2260/mo. (Would be higher if fully rented, but it isn’t, so. . . .) Rents are competitive in this, a small-town-in-a-predominantly-rural-county environment where rental rates, I suspect, don’t rise quickly. Property taxes are currently $4200/yr. I don’t have the hazard insurance figure yet. This is a 35-yo building claimed to be in good condition with virtually no remodeling/maintenance needed by me to start. Seller says he varies between zero and two vacancies in the thee years he’s owned the building. Seller claims the 8-unit it is appraised at $230K. Yes, of course, I will do more investigation of the seller’s claims, but what do any of you figure property’s value is, if the seller’s claims are accurate?
Question #2 is about structuring the loan. Would you oOffer full asking price with seller carry back, or get negotiate a lower purchase price with a full payoff to the seller at closing. I have 32K in a 1031 account which I will use. If I can get a loan with 20% down I can drum up the extra 14K needed for a 20% down payment. Another option would be to ask the seller for a small carryback loan. How might you suggest it be structured? With a seller carryback, do commercial lenders still expect the buyer come up with a full down payment of the remaining amount? Or can I use a seller carryback as part of the down payment?
Are any of you right now getting commercial loans with 20% down or you having to put more down? Less?
Thanks ahead for your informed response.