Analyzing a Deal

[David Drew]

Hi,

I am new to the REI game and I'm planning to invest in Binghamton NY. I am interested in buy and hold, cash flow investments. I am currently assessing a deal on 3 multi family homes (2 dup, 1 tri) listed for $55k, $65K and $65K, respectively. The owners have left the area and do not want to manage remotely. Each apartment is currently rented and the Cash on Cash is high. Rent vs. Sale Price is in the +2.5% range and the houses are in good condition. On its face, the deal looks very good, especially if I can negotiate the purchase price down based on a package deal for all three. Problem is (go figure) that I'm not sure I can raise the capital need to do the deal yet and therefore, so I'm looking for suggestions and feedback on how to do that. Here are some of the things I'm considering:

• Owner financing.  If the seller is even mildly agreeable, what would be the best way to propose this?  If I crafted a proposal for the seller to finance a portion of the down payment, what might that look like?  If I could get the $175k down to around $160k, that would be a start.  Then, I think I could come up with around $20k in cash today and would be looking for owner financing for somewhere around $20K.   
• Mortgage options. I think I can get financing for 75% of the purchase price for all three houses. I think it would have to be 3 separate mortgages but that seems overly complex. I wonder if I could buy and finance them in an LLC and whether that would be ideal?
• Seeking Partnership.  I have some friends and business partners who may be willing to form a partnership.  Other than the pitch, I have no idea where to even begin in terms of styles and types of agreements.  I'd probably want to start by looking for capital, paying a rate to the partner and owning 51% of the partnership.  Not sure.  

Hoping the BP knowledge base can help with some suggestions.  

[Cameron Tope]

Hi David,

Owner financing: Determine what monthly payment you can afford to pay the seller. Then find a mortgage calculator online or-if your're savvy with excel-build your own for future use. Then offer the terms that make the numbers work. Try to get little to no money down. 

Mortgage Options: Hard money or private money will allow you to borrow 65-75% of the appraised value. You have to cover the difference plus closing costs i.e. If the lender will loan 75% of ARV then you can buy a 100k property for 75k and only have to come out of pocket for closing costs.

Partnership: You're over thinking this one. Ask them if they want a piece of the action. If they say yes then see what they can bring to the table; time, money or experience. Let the negotiations begin.

You're not going to know everything going in. Start moving forward. Sure there are going to be times when you make a mistake or look like a dumbie but that's how you learn. 

The only other thing I would say is be careful of extremely cheap D class neighborhoods/properties. The maintenance, repairs, and vacancy can eat up a lot of your cash flow. 

Best of luck!

Cam