1st 5 - Unit/Commercial Questions

[Joseph Duff]

Hello all - I am looking to buy a 5-unit at 225k with 2k a month aggregate rental income.  1 unit is vacant.  The area is solid and is recently has been experience a hot streak.  

My first single family rental was across the street, but my question is about financing in commercial RE, offer strategies, and overall multi-unitl management?

Financing:  Do bank have much flexibility with rates?  Current pre-approval around 5% with 25% down.  Any input here would be much appreciated

Offer Strategies: We just lost the deal due to a lack of aggressiveness; which partly falls on our realtors reluctance to place an offer w/o a pre-approval.  Does this makes sense?  

Also, the realtor seemed irritated that I reached out directly to the owner, who i met during the walkthrough to find out if the property was still available after hearing a deal fell through.  We discussed, he said it was available, I called my realtor, and he seemed irritated that i reached out to the owner direct (second) Does that make sense?

What is the best option if you really like a property after a walk-thru to place an offer, in the interest of getting it off the market, b/c you like it, but still have an exit available if something comes up down the line? 

Managing: My family does construction and would be happy to do the work ourselves, but I am wondering if the payment and anonymity offers enough value to add my current property management company in the mix on the 5-unit?  

They currently charge 7% and 1 month rent if they find a tenant.  I usually do the work, if needed, but tenants don't know i am the owner.  

Thanks in advance for all your help.  Also, anyone who is looking for two young investors in the Philadelphia/NJ area to connect with feel free to reach out.  

Cheers,

Duff

[William Yeh]

Hey @Joseph Duff 

As @Jonathan Wilks mentioned, financing is entirely based on the cash flow the property generates. The lower the LTV from the bank, the lower their confidence in the performance prospects of the asset. That said, every lender has their own underwriting procedure so shop the loan around.

Realtors always like to have preapproval along with the offer. If they don't have some evidence that a buyer can afford a property, they risk wasting their time and reputation doing work on a deal that was never going to pan out. That's pretty standard. Realtor was clearly panicked as every Realtor is scared to death their client will go to another agent or go directly to the owner. A competent Realtor should have earned your trust enough for you to have them reach out to find out the availability of a property so I find it interesting that you thought it necessary to reach out yourself.

On offer strategy, I'll share with you a story. My group was bidding on a true 8% cap multitenant office building and submitted an offer of $3.45MM. We lost the deal to a group that offered the ask price of $3.57MM. After the fact, we found out that they brought the purchase price down to $3.45MM through inspections and haggling with the sellers for credit. Moral of the story is if you think it's a good deal, tie the property up first at market value and bake in enough time in contingencies to do all inspections/due diligence you need and adequately protect yourself from risk of liquidated damages. In this case, receiving disclosures after you're in contract will be grounds for you to go back and chip away at the purchase price which is a very common practice in the commercial RE world.

As for if it makes sense to bring your management in, that's entirely a business decision that you'll need to make based on what your time is worth.

Hope that helps.

Cheers,

Billy