82 Unit Acquisition - Trying to sweeten the offer, would you do it at these numbers?

[Tony S.]

Hi BP,

I've been investing since 2016 and now have 27 rental units in my wholly-owned portfolio.  I'm actively chasing a big off-market value-add portfolio deal in my farming area, but the owner needs some motivation to sell. I'm trying to sweeten the deal as much as I could with it still making sense for me, so below is my offer price.  Would you do it to get the deal done?

Unit Count: 82

Current rents: $700 average/unit

Rehab cost/unit: $30,000

Total rehab cost: $2,460,000 (funded through private lenders at 10%,  second lien priority)

Average rents once rehabbed: $1,100 with ability to raise rent by $50 each year.

Purchase price: $5,070,000

Down Payment: $1,134,000 cash (I'll fund the down payment with existing credit lines against my current portfolio and cash)

Seller-Finance Note (first priority lien): $3,936,000 amortized over 30 years, balloon payment after year 7.

Interest rate: 6.5%

Would you do this deal? My goal has always been to own 100 units and then I'll retire. Taking down this deal would bring me to 109 units and take me 2-3 years to fully rehab and stabilize.  I have a property management company and this deal is in my backyard.

[Taylor L.]

I'd speak with lenders in your market before closing on the deal. We are not seeing anything near 80% LTV these days. That could change by the time you're ready to refi, but it also might not.

Naturally, do your on-site DD. I've had so many plumbing issues with 70s build properties, I don't do them anymore. If you get lines scoped (for example) and find issues that could give you a good negotiating point with the seller.

It does sound like an interesting deal and it's great you know the area. My hangup would really be amount of leverage.