Need advice on my first property deal.

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Need advice on my first property deal.

Vik Divinets
Investor · Portland, OR · Member since 2015 · 18 posts · 2 votes

Can you please help me and advise me on this one.

I have a 28 unit apartment complex (mom & pop type) under contract for $185,000 and the tax assessment is at $250,000 and its market value is at $300,000. Fully occupied with a few vacanies. An old lady of 86 years old is managing the place and needs someone to replace her. She's a motivated seller and is begging me to buy, but I'm having trouble doing that at the moment. Please help me on what I should do before (God forbid) someone else takes this deal.

Can you please help me find financing? It's my first deal and I'm super excited about it. My plan is to live there and manage it myself for at least the first 6 months to set up a proper system in place, and then have a management company take over. Here are the numbers it produces:

1. The apartment is cash-flowing $12,000 - $10,000 a month in rental income. The operating expenses are close to $3,000 a month, with a net income of $9,000 - $7,000 a month clean cash. That type of cap rate is unheard of. All the lenders are telling me that it's too good to be true. But I have the bank statements to prove it. I've done my homework and got all the documentations and paperwork needed to know that this deal is solid. (I also have the title report, no liens).

2. The standard rent is $400 per studio (all 27 units are studios except the 28th one is for the landlord to live in, which has full bathroom, kitchen, living room and bedroom).

3. It was built in 1924, brick building, 3 stories - "a rail-road hotel" type, if you know of those old style apartments? And yes, it has ****-roaches and bed bugs, but that's okay, it's all manageable.

4. Can you please help me purchase this apartment? It's located in Klamath Falls Oregon.

5. If you can't do it, do you know of any investors that would be interested? Can you help me purchase it in any way, shape or form. Really need your help on this.

Thanks a lot, highly appreciate you!

- Viktor

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Anthony Dooley
Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes
9y

Dude, your numbers are all over the place, but this is what I managed to sift out of this post:

$400 rent x 27 units (you live in one) = $10800 month x 12 = $129,600 potential rent divided by 2= $68,400 Net operating income. Divide that by a .12 CAP rate because it is in the ghetto = $570,000

What would I do if I had no money and this deal?  Offer the lady $200,000 if she will let you close it in 90 days.  Put that in a legally binding Purchase and Sale Agreement.  Then I would put it on the market for $570,000 immediately with a commercial broker as well as LoopNet, FB, Twitter, snap chat, etc. and tell all of my friends about this amazing opportunity.

You make $370,000, the old lady gets $200,000, and it's somebody else's problem.  Then go find another deal.  You are very welcome.

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  • Anthony Dooley
    Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes
    9y

    Dude, your numbers are all over the place, but this is what I managed to sift out of this post:

    $400 rent x 27 units (you live in one) = $10800 month x 12 = $129,600 potential rent divided by 2= $68,400 Net operating income. Divide that by a .12 CAP rate because it is in the ghetto = $570,000

    What would I do if I had no money and this deal?  Offer the lady $200,000 if she will let you close it in 90 days.  Put that in a legally binding Purchase and Sale Agreement.  Then I would put it on the market for $570,000 immediately with a commercial broker as well as LoopNet, FB, Twitter, snap chat, etc. and tell all of my friends about this amazing opportunity.

    You make $370,000, the old lady gets $200,000, and it's somebody else's problem.  Then go find another deal.  You are very welcome.

    5Reply
  • Mary White
    Rental Property Investor · Klamath Falls, OR · Member since 2016 · 146 posts · 213 votes
    9y

    Hmmm...I live in Klamath Falls and can't understand how this property exists. This is a extreme weather mountain town where I've never seen a cockroach. If you honestly have a good lead on a place I do know a lender who'd help you here. 

    1Reply
  • Vik Divinets
    OP
    Investor · Portland, OR · Member since 2015 · 18 posts · 2 votes
    9y

    Anthony, I agree, it's $10,800 a month on a regular basis, but I have the bank statements for 2 years on how much the owner was making each month, and there were some good months where $12k came in. Some months only $9k came in, that's okay, it's still net positive cashflow. 

    Also, the other thing i didn't mention - the ownership status. 

    There are currently 2 owners on the title. The primary owner (who doesn't live onsite) has the secondary owner (she lives onsite) in a seller finance agreement. So until the primary owner gets his remaining principle balance paid off of $75k, he won't allow me doing any creative financing like my own seller finance deal with the secondary owner. 

    I was thinking of getting a 75% LTV on the $185,000 purchase price and the rest of the $46,250 that I owe to the secondary owner will be paid off in a seller finance agreement because the primary owner got his $75,000 remaining principle balance paid off with that 75% loan. What do you think about that technique?

    Also, I will never sell off a cash cow like this. There's no reason to sell of an asset that pays you such high monthly profits. Buy and hold strategy is a wise one. 

    - Viktor

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  • Vik Divinets
    OP
    Investor · Portland, OR · Member since 2015 · 18 posts · 2 votes
    9y

    @Mary White - Oh wow. Yes, you'd be surprised about what you can find out here in KF. Can you please give me a call. I'll be heading over to KF in a few days and would love to meet you and partner up with you on this deal. How can I call you?

    And yes there are plenty of cockroaches ahahaha - those little critters can survive in any weather condition. Will be gutting the place with pest control company. 

    0Reply
  • Anthony Dooley
    Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes
    9y

    A bank will only lend you 75% of the purchase price.  They will not lend based on the value.  In order to get a 75% loan on $185,000, you would have to put down 25% or $46,250. 

    Contact a lender and let them know that you want to purchase this property for $185,000, but you only want to borrow $80,000.  You will need money for closing  costs, insurance, etc. This buys the other guy out and you can then do seller financing or a master lease with owner number two.

    Unless you know someone that would loan you $50,000. Then you could just buy it with a traditional commercial loan. Much cleaner.

    1Reply
  • Anthony Dooley
    Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes
    9y

    Or, the lady that runs the place could borrow $75,000 against the property to pay off the first guy. Then she can do the master lease, which means that you don't need to qualify for a loan right away.  Save your money from the rents for a down payment so that you can buy her out. 

    2Reply
  • Vik Divinets
    OP
    Investor · Portland, OR · Member since 2015 · 18 posts · 2 votes
    9y

    @Mary White can I please contact you in some way to get a hold of these lenders that you know of?

    Thank you 

    @Anthony Dooley - let's partner up together on this deal? Message me. 

    Vik 

    0Reply
  • Anthony Dooley
    Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes
    9y

    I would, but I don't buy out of my area. There are ways to do this. I have already given you a few off the top of my head. Do owner financing with the lady and replace her on the deed. She would have a lien on the property. Then, refinance the place and take cash out or get a HELOC against the equity to pay off the other guy and get them off the deed. Use all the money from rents to slowly improve the place.

    0Reply
  • Vik Divinets
    OP
    Investor · Portland, OR · Member since 2015 · 18 posts · 2 votes
    9y

    @Anthony Dooley - that sounds great. and would love to do that, but the primary owner doesn't allow any deed transfers until he gets paid off his remaining balance of $70k on the seller finance agreement that he has right now with the secondary owner. 

    So here's my plan. I'll pay off the $70k remaining loan balance to the primary owner and then do a seller finance agreement with the secondary owner and pay her off with monthly payments. 

    That makes the total purchase price of: $185k - $70k = $115,000 remaining balance to pay off in the seller finance agreement to the secondary owner. 

    What do you think?

    Vik

    0Reply
  • Anthony Dooley
    Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes
    9y

    Sounds great because it's worth at least $500K. If you have $70k, you should be able to get a bank loan for enough to pay them both off. Or, once the $70k is paid and you are on the deed, you should be able to get a HELOC to pay off the remaining $115K. I'm excited for you.

    0Reply
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