4th deal in 6 months, am I over leveraged? Poor financing offer?

[Drake Espenlaub]

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I have made an offer, and am meeting the owner of an off market deal on a 5 unit of four 1/1's and a 2/1. He is asking 110k, we have settled on 104k sharing closing cost. We are meeting Monday to tighten up the deal and began to write the contract. 

Here is the rent roll on the property, if you were curious. I honestly feel the property is worth in the 150 range, it is located in a historic part of downtown in my city, where property value is rising, and there are in the process of building a new medical school 2-3 blocks from this location.

A - 1/1 - lease from 6/12/2017 - $525

B - 2/1 - vacant

C - 1/1 $525 lease from 6/16/2017

D - 1/1 $425 lease from 11/12/2010 - these tenants are likely to live in the unit until they pass away. Older couple.

E - 1/1 $450 lease from 7/26/2006 - Middle aged male likely to continue to stay for an extended time.

Taxes on the building would be roughly $2500, Insurance estimate $1200. Owner pays utilities now, however it has 5 meters, and I would change that, generating a possible 7k increase yearly in income. 

I started investing roughly 6 months ago, buying my first duplex in May (54k pp, owe 48k on mortgage) payment with TI is $480/mo, no tenants as it is under remodel. I have since purchased two other duplexes, 1 is vacant and in need of remodel before I will be putting tenants in it as well, payment with T&I (38k pp)  $350/mo. The other is turn key, has 1 side rented for $400/mo, I plan on having a tenant in it shortly after closing at the end of this month. Payment $350/mo T&I included.

My other monthly payments include $150 school loan, and $60 car insurance. I have no other debt. I bring home $1,100 every two weeks. I have roughly 10k liquid, but am using that amount to remodel the second duplex. As the first is planned to be completely finished by February (I am doing most work myself), is my thinking process flawed..bare with me.

I am wanting to refi my first duplex purchase asap, I can do it after 6 months there was no seasoning on the original mortgage. I see the duplex as appraising from 95-105k, and would like to pull the equity out of it to use towards the new 100k 5 unit deal (35-40k). 

1. The main 1st duplex has been painted on the outside, the lower level has the new windows installed, both units have brand new high effenciency furnaces and a/c, which the upstairs never had duct a/c always window units. I added a 37x15 bedroom in the basement that will be finished in the next week. Will have some very nice finishes. That bathroom is also complete. The lower unit should be complete by end of year. Can I refi it before or right after the lower unit is done, or would it be better to wait until both are complete to get max equity. In my area I know "drive by" appraisals are common, maybe this is a question for the bank.

2. I sent this in email today to the seller, the creative financing was off the top of my head, I feel like it is fair for both of us and if I default he wins, if I go through with it, he wins. 

Dear,

That all sounds fair, I would love to buy you lunch Monday if you have time. Otherwise we could just meet for a cup of coffee somewhere or at your office. Let me know what works for you. Also, I have approval for financing, but if you would be interested in working an owner financing deal I would entertain the idea, as it would be beneficial to me while I have other deals in the process.

I would need to speak to my lawyer as I have not done a contract deal, but I would be interested in doing something like 5k down, and a balloon payment of 99k due in June. Interest only payments for the 6 months (no payments come off the principal) This may give you an opportunity to make extra money on the deal and give me an opportunity to close on my current deal the bank is working on, also holding cash back for my current remodel. I would forfeit the funds and you retain the property if I don't complete the transaction. That is off the top of my head, we could talk if you are interested in working out those details.

If that does not interest you I can go traditional financing and we can likely close after the holidays. Something we can talk about if you like when we meet.

Thank you,

Drake Espenlaub

Associate Broker

Keller Williams

Thank you for any advise or guidance on the situation. My reasoning for the creative finance offer, is I need to hold on on the refi of my 1 duplex to really have the cash to support all properties. Does this mean I am over leveraged? I feel comfortable with my payments, and will have enough to put into a reserve account for cap x items when the refi is complete. Thanks for the read.

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