from 2 to 21 units!

[Kenneth LaVoie]

There's a little rambling here, but I want to get all my "facts" out and see if anything comes up about my logic and direction for the regulars here:

My plan was originally to acquire SFH for the appreciation only, maybe a little cash flow. The reason was my comfort zone -- however, I looked ahead and realized that I was willing to push my comfort zone a bit in exchange for a combination of instant equity AND cash flow. In other words, purchasing something at a discount that also cash flows nicely. (currently I own one house worth 90 that I got for 76 and it rents for 695 - about -500 per year cf and one I am closing on next week for 65k after repairs, rent for 795 and will cash flow just the opposite, or a little more, like $500-$600 per year) -- house is worth 85-95k

Now I'd stayed away frm anything over 4 units becuase I knew that if I didn't like being a landlord, I'd have tougher time dumping them due to more difficult financing (in general). Well, this week I said "F*** it!!" I put 2 offers -- one for an 11 unit for 198k and another for an 8 unit for 184k. Owner of 11k is very wealthy, just wants to get out of it, get his money back. Appriased 2 months ago for 255k, he paid 260k for it. 1 unit vacant in each bldg., each building "base case" cash flows at 12,500 per year using my "line item" excel calculator (it shows 57% expense to gross rent vs. 50) and when I do a 50% analysis, they cash flow 15-17k per year. (I have financing and inspection contingencies on both and my buyer's broker holding my hand a bit) --

with approx. 100k down, my cash flow return says 25%. I like this. It's VERY strange that 4 units in my area are going from 110-160k but these bigger places are at such a lower "per unit" price. I've found a few since, 5-7 units going for 140-200ish.

Financing at 5.75% / 30 year (5 year fixed) -- this is the thing I didn't know -- that there's almost no such thing as completely fixed commercial lending on bldgs over 4 units?? I'll need to put 20-25% down, depending on how the financials look. What I'd LOVE to do, because they seem to cash flow so nicely, is come up with a way to get my downpayment back -- My closing costs are very low ($500 give or take) so I don't mind closing then doing something after the fact -- any suggestions??

I'm doing margin loans vs. taking cash out for the DP -- I don't like the idea of liquidating that much (100 plus k) becuase the market went down, and I'd be selling toward the bottom (presumably) -- so I'm going to do margin instead for now which only accounts for 25% of what I have in there, so there's no margin call risk or anything.

A local property manager who's been mentoring witll take care of the 11 and 8 units -- but I plan to negotiate -- the man who takes care of both (and owns one) now, would charge me 10% for mgmt. but NO additional for getting tenants in -- whereas my "mentor" is I believe 8% on both ends. Hopefully with a sudden gift of 19 units (or 21 if I turn over hte houses) will earn a discount.

That's about it!! I'd love your feedback --

[Eddie Ziv]

I'm with Mike. It seem like you have a lot to learn before you dipping into these muddy waters. My biggest question would be: If it's so good, why is it so bad? Why the owner of the 11 units (Regardless how wealthy he is) is willing to take such loss and is so eager to sell? People usually don't sell good cash flow income property unless three main things happen.
1. They are not in good health, or maybe even die
2. They are in financial dire.
3. They see something that you don't such as declining of neighbourhood, big employer go bust, etc.
They may aslo know of some major deterioration in the building that require huge expense that may render the property as non-profitable. However, this is something you can find upon inspection and back off.

I would strongly recommend that you find out the seller motivation.