large multifamily deal

[Jared Bonner]

Hello BP'ers

We have a large multifamily deal we are in the first phase of pursuing.  Its the largest deal we've ever attempted and need some "big fish" advice.

deal basics:    purchase price:  estimated  $7,500,000
                    # units:                around 70
                         80% loan            $6,000,000
                         20%  dp               $1,500,000
                       
My question is this for the big kahunas out there.....  we have the $1,500,000 down payment (mostly in other various real estate assets in multiple legal entities),  however,  this deal would "tie up"  a good portion of what is now our FREE and clear net worth....into this one deal.  It would tie up about 80% of our net worth. (and place it "at risk" I'm assuming )    Assuming the deal is at least  "average"  for a high end , lower cap rate facility, and assuming that cash flow is sufficient to produce excess "cushion" cash flow at the end of every month -   is this too much net worth to tie up into one property?   Should we be looking to tackle some smaller deals first to build up that net worth higher ?  is there a rule of thumb before pursuing these larger deals?   Looking for some advice from those that have been down this path before...

thoughts?

Thanks All!

[Benjamin Aaker]

Congratulations on having this problem. Most aren't even close to that kind of cash/equity. That much is a lot to risk on a single deal. It's always risk vs reward and if the reward was very high, it might be something to consider. You ask us to assume the deal is at least average, which probably means it doesn't have enough upside. Consider setting up a joint venture or syndication.