I have an Off Market oppertunity and would like some advice.

Multi-Family and Apartment Investing
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I have an Off Market oppertunity and would like some advice.

Tristan Morgan
Member since 2022 · 6 posts · 3 votes

First off , Thanks to anyone who can help me out here with advice or thoughts.

What I have before me and was offered to me was a 8 unit apartment complex.   that's 8 units between 2 buildings.

Building 1 has 2 units rented already making $650/mo each.   the upper units would need roughly $12K in renovations before tenants could move in.

building 2 needs a lot. HVAC, electrical, cabinets, appliances and a little bit of plumbing. as well as the regular rehab such as paint and new carpets.   roughly $60K worth of work.

Owner has told me they want $110K and will let me owner finance at 4% for 5 years.  he would likely take $90K  if i offered it upright.

however this is what I was thinking of doing.   since I have a commercial property that's paid off I could pull equity from.

why not go ahead and pull a solid $175K out of my already owned property. and use it to buy and rehab this apartment complex? that would in theory allow me to have a 20 year loan or so and would help me have  a lower loan payment overall even though at a higher interest rate. as well as giving me the funding to rehab completely and build time to gain tenants. 

Thoughts? advice?  any good contractors you may know that could take this on in our region?

is there anything that im missing? or should cover first?  

again, Thank you all for any thoughts on this.

Tristan

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  • Melissa S Vrobel
    Investor · Orlando, FL · Member since 2021 · 79 posts · 36 votes
    4y

    @Tristan Morgan  Hey, my advice would be to go with owner financing at the lower interest.  Is there a reason to go with a higher interest rate?  Do you have the cash to do the repairs? 

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  • Tristan Morgan
    OP
    Member since 2022 · 6 posts · 3 votes
    4y
    I currently do not have the cash to fund that renovation unfortunately  but possibly could do the one building and get 4 units ready  then slowly work on building 2. given the one building would only take $10K or so and to get the second building to a point of security and weather ready ( has a few windows vandalized.)  would be a few grand there.
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  • Evan Polaski
    Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
    4y

    @Tristan Morgan, I am assuming you would need to get a mortgage on your commercial property?  The good thing about this, is that money is tied to that property.  So, you could theoretically pull a smaller mortgage, still use owner financing to buy the 8 units, then the proceeds from your commercial mortgage to renovate.  

    For seller financing, is the 4% 5yr a fully amortizing loan, or is there a balloon at end of 5 yrs?  

    The bigger piece to all of this, does this deal make sense at all, regardless of financing?  Rehab budgets feel low.  Anything I, personally, consider rough will take far more than $60k, and the scope you have outlined seems like it will be well above $60k (of course "rough" is a subjective term), but I would make sure that number is nailed down with current labor and material costs.  Even the $12k per unit for the other building seems low.  That might get you two kitchen remodels, but not much else, if you are hiring out all work, and assuming you don't own a construction company where you can control labor costs more than hiring a lot of subs.  

    Once you have the numbers nailed down, does your total spend actually make sense?  Could you turn around and sell for more than $175k (if you can get for 90) or $200k (if you have to pay 110).  In my paradigm, this seems like it would not be an issue, and even pretty rough areas in my market sell for 30-50k per door, but I don't know market or area, so something to consider.

    And from the numbers standpoint, 8 units, fairly rough condition, only $72k spent in initial Reno, sounds like there will be a lot of items left for future capex.  Roofs, windows, maybe some tuckpointing or siding replacements, etc.  I would make sure your projections have a healthy repair and maintenance and capex reserve being held back each month.

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  • Tristan Morgan
    OP
    Member since 2022 · 6 posts · 3 votes
    4y

    @Evan Polaski  Thank you for that insight and questions. yeah the reno seems low. but im lucky to the point of the floors walls, roof and siding are solid and dont need anything but a good cleaning.  whats the big costs associated with the rough building is that the hvac would need replaced on each unit. already quoted to be about 10K installed. as well as some electrical repairs.  these buildings were build new in 1995. and new roofs and siding in 2016.  only roof repair i could find was a damaged vent cap. on one of the peaks. then windows im looking at close to $500 ea to replace and id have likely 6 or 7 of those to do to make the "rough" building weather proof.

    If i wanted to sell it after the renovation and a few other upgrades it would probably market for over 300K especially if it was at least 50% tenancy

    If the bank would let me mortgage the renovation costs that would be great. cause i would not mind that at all. and yeah the 5 year seller finance is entire loan over course of 5 years , no balloon. but with 25% down.

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  • Frank Greg
    Lender · rate.bid · Member since 2022 · 324 posts · 62 votes
    4y
    Quote from @Tristan Morgan:

    First off , Thanks to anyone who can help me out here with advice or thoughts.

    What I have before me and was offered to me was a 8 unit apartment complex.   that's 8 units between 2 buildings.

    Building 1 has 2 units rented already making $650/mo each.   the upper units would need roughly $12K in renovations before tenants could move in.

    building 2 needs a lot. HVAC, electrical, cabinets, appliances and a little bit of plumbing. as well as the regular rehab such as paint and new carpets.   roughly $60K worth of work.

    Owner has told me they want $110K and will let me owner finance at 4% for 5 years.  he would likely take $90K  if i offered it upright.

    however this is what I was thinking of doing.   since I have a commercial property that's paid off I could pull equity from.

    why not go ahead and pull a solid $175K out of my already owned property. and use it to buy and rehab this apartment complex? that would in theory allow me to have a 20 year loan or so and would help me have  a lower loan payment overall even though at a higher interest rate. as well as giving me the funding to rehab completely and build time to gain tenants. 

    Thoughts? advice?  any good contractors you may know that could take this on in our region?

    is there anything that im missing? or should cover first?  

    again, Thank you all for any thoughts on this.

    Tristan


     So you require a total of: $162K to acquire and repair an 8-unit apartment with a current occupancy rate of 25%. Each unit generates $650 per month?

    0Reply
  • Tristan Morgan
    OP
    Member since 2022 · 6 posts · 3 votes
    4y
    Quote from @Frank Greg:
    Quote from @Tristan Morgan:

    First off , Thanks to anyone who can help me out here with advice or thoughts.

    What I have before me and was offered to me was a 8 unit apartment complex.   that's 8 units between 2 buildings.

    Building 1 has 2 units rented already making $650/mo each.   the upper units would need roughly $12K in renovations before tenants could move in.

    building 2 needs a lot. HVAC, electrical, cabinets, appliances and a little bit of plumbing. as well as the regular rehab such as paint and new carpets.   roughly $60K worth of work.

    Owner has told me they want $110K and will let me owner finance at 4% for 5 years.  he would likely take $90K  if i offered it upright.

    however this is what I was thinking of doing.   since I have a commercial property that's paid off I could pull equity from.

    why not go ahead and pull a solid $175K out of my already owned property. and use it to buy and rehab this apartment complex? that would in theory allow me to have a 20 year loan or so and would help me have  a lower loan payment overall even though at a higher interest rate. as well as giving me the funding to rehab completely and build time to gain tenants. 

    Thoughts? advice?  any good contractors you may know that could take this on in our region?

    is there anything that im missing? or should cover first?  

    again, Thank you all for any thoughts on this.

    Tristan


     So you require a total of: $162K to acquire and repair an 8-unit apartment with a current occupancy rate of 25%. Each unit generates $650 per month?


    Yes, that is generally what the whole of it is. at minimum. if I can get the parking area paved and a few other amenities they will likely rent at $800/mo.   the current renters are low income fixed rate
    0Reply
  • Frank Greg
    Lender · rate.bid · Member since 2022 · 324 posts · 62 votes
    4y
    Quote from @Tristan Morgan:
    Quote from @Frank Greg:
    Quote from @Tristan Morgan:

    First off , Thanks to anyone who can help me out here with advice or thoughts.

    What I have before me and was offered to me was a 8 unit apartment complex.   that's 8 units between 2 buildings.

    Building 1 has 2 units rented already making $650/mo each.   the upper units would need roughly $12K in renovations before tenants could move in.

    building 2 needs a lot. HVAC, electrical, cabinets, appliances and a little bit of plumbing. as well as the regular rehab such as paint and new carpets.   roughly $60K worth of work.

    Owner has told me they want $110K and will let me owner finance at 4% for 5 years.  he would likely take $90K  if i offered it upright.

    however this is what I was thinking of doing.   since I have a commercial property that's paid off I could pull equity from.

    why not go ahead and pull a solid $175K out of my already owned property. and use it to buy and rehab this apartment complex? that would in theory allow me to have a 20 year loan or so and would help me have  a lower loan payment overall even though at a higher interest rate. as well as giving me the funding to rehab completely and build time to gain tenants. 

    Thoughts? advice?  any good contractors you may know that could take this on in our region?

    is there anything that im missing? or should cover first?  

    again, Thank you all for any thoughts on this.

    Tristan


     So you require a total of: $162K to acquire and repair an 8-unit apartment with a current occupancy rate of 25%. Each unit generates $650 per month?


    Yes, that is generally what the whole of it is. at minimum. if I can get the parking area paved and a few other amenities they will likely rent at $800/mo.   the current renters are low income fixed rate
    @Tristan Morgan  You can always PM to discuss details and explore options.
    0Reply
  • Tristan Morgan
    OP
    Member since 2022 · 6 posts · 3 votes
    4y

    @Frank Greg Thank you! 

    0Reply
  • Kerry Noble JrPro Member
    Investor · Indianapolis, IN · Member since 2018 · 2k+ posts · 1k+ votes
    4y
    Quote from @Melissa S Vrobel:

    @Tristan Morgan  Hey, my advice would be to go with owner financing at the lower interest.  Is there a reason to go with a higher interest rate?  Do you have the cash to do the repairs? 


     Yes i would go with the owner finance as well....

    and maybe think outside the box.....and offer 2nd position for the rehab money (a strategy i read about in an old book written by William Nickerson) if the numbers work........

    just throwing out creative options.....in which you can get in the deal with as little cash out of pocket on your end

    0Reply
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