Way too much down, way too big of a loan based on your cash situation, and way too short of a pay back period. How do you intend to come up with almost half a million in seven years? That's $60K per year you'll have to save to be able to pay this seller off. The bigger question here is, how much of a discount are you getting on the retail value of these properties? Based on the rents, it sounds like the prices are good, but I live in California so I have no idea what your market is doing.
Why not eat the elephant one bite at a time? Take down the least expensive property and once you get control of it, work on shoring up the financing. Then, move on to the next. If you're getting a decent discount, maybe sell them one at a time until you are left with one that you have paid off considerably.
As a buy and hold investor, I want to keep everything I get a 'Yes' on from a seller. Only problem is, I run out of cash. Every once in a while, I have to drag something out behind the woodshed and harvest the equity.
In this situation, I might sell off the two most expensive properties and use the profits to be left with the least expensive free and clear or mostly paid off. You'd hopefully still have a large chunk of your operating capital so you can stay in business.
Another option, if you're getting a significant discount, is to find a partner on the deal. You might be able to raise the entire down payment from a partner and still retain 25-50% of the deal. Just depends on your negotiation skills.
Here is what I would and have done;
Find a fellow investor and it doesn't have to be someone in real estate. You split the deal 50/50, but you guarantee that person a 6% return on their cash invested off the top. She puts up the down payment of $229,000 and you pay $1,145 per month on that.
Using the very conservative 50% rule, you take a nominal management fee for doing the work, and split all the cash flow 50/50 but you have to pay the 6% regardless. There should be plenty of cash available every month and if you do a good job which you will because you'll be a partner, you should be able to pocket at least $1,000/month.
$654K purchase price. $229K down. $425K 1st at 7% = $2,500/month
GSI $9,500
10% taxes, 5% insurance, 10% maint, 10% mngmt, 10% vac, 5% learning curve
$4,250 net
- $2,500 interest pmt on seller's 1st
$1,750 cash flow to split, but partner gets 6% guarantee
- 1,145 partner guarantee
$605 cash flow to you just for putting the deal together PLUS the 10% management fee. Conservatively, you'll be pocketing around $1,500 a month if you do your job. That's not bad income for 14 units and no money down. Of course, there are escrow fees and all that jazz so maybe you have your partner put up $240K.
When I was doing deals like this, I also included an acquisition or finder's fee for putting the deal together. So, maybe the partner puts up $250K and you use $10K to line your pocket and pay the 6% on the $240K.
It's late. There might be some slight miscalculations here or there, but you can iron out the details. I've done a bunch of deals very similar to this and even with a few hiccups here and there, they still all worked out well for both myself and my partners.
