How do I fund this deal?

[Ian Hess]

Hey BP!!   I have been a real estate investor for a little over a year now when i purchased a four plex. It has gone pretty well and I am now ready to move on and purchase some more units. I just found someone selling three 4-unit buildings (12 units total). He is asking 350k for each building and it is buy all three or none. Just from questions asked to him briefly, 2/3rds of them are updated and the others are not. It also seems like the management is poor and the rents for location are pretty low. I think there is really good room for increasing my equity and cash flow from the get go.

My real question comes down to how to fund this?  I know a lot of people are 100% financing this sort of thing but how do you do this.

Do I do 1 commercial loan, 1 personal loan, or three personal loans, or something else?

How do you overcome your fear of taking out a million dollar loan?

How do you determine whether this is a good deal or not? Cap rate or cash flow or both? Or neither?

I can provide better numbers tomorrow when he sends over the financials.

[Michael Galesky]

Looks like after expenses it is around $380 per door, not at all bad if you own it outright but with a 5% loan you are at -$163 per door.  Not that this matters much because the banker will not lend you the money knowing this information.  You need to find out what the comps are for those buildings and see if there is any dealing to be done with the seller.  For a turn around on rents, supposing they are not month to month, will be in the range of 2 years and raising rents by $163 per unit will only find you at the break even point with no reserves for capex.  you would have to raise rents by $263 per door just to get $100 per door profit. Don't fall in love with the deal before the numbers tell the truth.