Rental Property Investor · Agana, Guam · Member since 2015 · 71 posts · 11 votes
Please help me with my first offer for an apartment building:
Subject: Six Unit Apartment building on the market for $800K. Only three of the six units are occupied. I believe I can get $1,000 for each unit after some renovations. The building is actually set up as condos, so the six units can eventually be sold individually
Offer: I would like to offer $510K for the building. If the owner accepts this, It will give me a great positive cash flow once all units are rented.
Questions:
1. Will the bank require a down payment of me? If so, how much?
2. What kind of loan and terms will the bank give me on this building?
3. How will the bank determine the appraised value of the building?
4. Will the appraised value of the building go, once all the units are rented? If so, should I refinance it at that time and cash out?
Thank you. I look forward and appreciate the feedback.
Real Estate Agent · Plano, TX · Member since 2015 · 734 posts · 511 votes
10y
@@@ I'm assuming the property is inside the US mainland because otherwise the below might not be relevant to Guam. @@@
I'll try to answer in order:
1) yes. Most likely 25% of purchase price.
2) you will have a harder time to get a single conventional loan for the six units if they are considered individual condos. You probably looking at either commercial loan or 4 conventional + 2 "alternative loans" (private money, local banks, etc.). Your best bet would be to talk with a local / regional bank.
Terms for commercial loans will be different from bank to bank but the majority of them will offer a 5 year term with 20-25 amortization.
3) the bank will use a professional appraiser.
4) depending on the terms of your loan it might be worth while to refinance once you rehab, rent and stabilize the property for at least 60-90 days to show track record.
Good luck with you first purchase. Taking action is the only way to move forward!
Development Director · Boca Raton, FL · Member since 2016 · 29 posts · 22 votes
10y
Way to take action!
More information is needed to accurately evaluate your deal, but based on what you've provided...
1) Any US bank will absolutely require a down payment, usually on the order of 25% and perhaps more...there will also be a reserve requirement. Expect the banks to hedge their risk since this is your first MFH deal. But that doesn't mean you have to use your money for it. There are many ways to make this kind of purchase without using your own capital...seller financing, private money and angels are all great options.
2) Type of loan and terms is contingent on lending entity criteria, deal parameters, buyer qualifications, collateral value, et al. You may have to pay a bit more to get into your first deal...the value add is education by doing.
3) Appraiser will determine asset value, underwriting will determine value to lender...low occupancy may factor. You may want to consider a bridge loan to reposition the property, then refi at 6 months into long-term commercial financing. Qualification will be largely asset-based for the bridge, then occupancy and debt-coverage based for rental financing.
4) Yes. Value in commercial goes up based on the NOI. Increase net income, increase value.
You are in the right place...BP has literally thousands of resources and posts that offer a free education to those seeking it out. You've got the take-action part going. Spend time networking, researching and learning...and your deals will come together through the power of knowledge and eventually experience.
Cincinnati, OH · Member since 2013 · 1k+ posts · 1k+ votes
10y
Joseph Duenas most bands will require 25% down. However, since this is your first commercial deal many banks will require you to hire professional management.
How are you arriving at your offer price? Take a look at comp buildings and cap rates for the area. Understand your CapEX and calculate your return, purchase price, etc from there.
Investor · Lake Forest, CA · Member since 2016 · 16 posts · 1 vote
10y
Which banks would you recommend for this type of loan? Also, Christian Cascone , can you give some more pointers on how to acquire without using your own money? That would be great!
Development Director · Boca Raton, FL · Member since 2016 · 29 posts · 22 votes
10y
Check out the BP Hard Money directory Hard money just means money lent against a hard asset. These loans cost more, but when used properly, can be a great tool for the sophisticated real estate professional...especially once you establish a relationship with the lender.
Seller financing for all or part of a deal, is often as easy as asking the seller to do the deal...never ceases to amaze how few people ask. You have to know what you want, then ask for it.
Angels and private money are relationship deals. This approach has been most famously utilized and institutionalized by Silicon Valley, but fundamentally it's all about relationships. Angels get to know you, your vision and your deal/product/company...then they decide if the total package merits VC funding. It's no different in real estate. Know your stuff and present a great package...when done right, you are doing the investors a huge service. You've done all the work and all they have to do is watch you make them money.
Putting deals together without using your own money is not nearly as difficult as people think. Remember that investors are investing in you, before they invest in the deal. Learn as much as possible and know what you're doing, network and build relationships...then have the ability to identify the deal and the courage to act on it. Having sincere objectives beyond just making money goes a long way towards getting people to want to do business with you. These are a few keys to successfully funding and closing deals.
Gansevoort, NY · Member since 2016 · 14 posts · 0 votes
10y
this is where I am still getting confused. I have yet to make my first "investment" purchase. When I see people discussing deals that aren't even close to 1% let alone the 2% rule I don't see how these are worth the investment to actually cash flow. Are you looking for more of a long term appreciation type investment? Can someone Please explain what I am missing.
Arlington, VA · Member since 2013 · 115 posts · 40 votes
10y
In today's market, it doesn't seem very realistic that you could offer $510k for an $800k building and have the owner accept. Everything changes if you're buying at $770k compared to $510k.
Lender · San Antonio, TX · Member since 2016 · 102 posts · 45 votes
10y
Where a lot of people get confused with commercial bank financing is the difference between cost and value. In an acquisition, the bank will lend you based off of a % (usually 75%) of Loan to Cost (LTC) or Loan to value (LTV) - whichever is LESS.
So, you buy a property for $100k, it appraises for $140k. Bank is basing their loan off 75% of the $100k, so a $75k loan.
You buy a property for $100k, the appraisal comes back at $90k. Bank is lending you $67,500 (75% of value).
1) a. Hard Money - quicker time to close, may finance a larger portion of the cost. Hard means they are lending based on the collateral - looking for good equity. More than likely they will not require you to provide a mountain of financial info (tax returns, personal financial statements, etc).
b. Commercial - longer process, lots of requirements with in-dept underwriting on your ability to repay. Commercial real estate lenders look for for cash flow as the primary repayment source, not equity in the real estate, though that is important. Rates are much better than Hard Money and their terms are usually better and longer. Fees are less.
2) Seller financing terms/rates: Whatever the seller decides. Typically see the seller financing with 1-5 year balloons on 10-20 year amortizations. Rates vary, again whatever the seller is good with. For paperwork, you need to consult a real estate attorney and have them draft the loan documents. Recommended using title services too.
Based on the type of questions you're asking about commercial loans and commercial finance, I'd definitely hold off on making an offer. You need to do some research on commercial lending characteristics. It's an entirely different beast than conventional lending.
Investor · Saint Louis, MO · Member since 2016 · 970 posts · 1k+ votes
10y
Along with everyone else, I'm going to play a hard#ss but you need to scour the web to research these yourself before going straight into such simple questions..I definitely do not think you are ready for this type of deal. Google is an amazing tool and you would find better answers from that.
Investor · Lake Forest, CA · Member since 2016 · 16 posts · 1 vote
10y
Maybe this would be a good opportunity to partner with someone you trust. Even if you don't understand the ins and outs, that doesn't mean you don't have a good deal in front of you.
1) For a commercial bank loan? Are they usually personally guaranteed?
2) Do you know of any good banks for these commercial loans?
3) I apologize, but what does a balloon or amortizations mean?
4) Do they accept seller financing for the down payment?
1) Yes
2) Local community banks
3) Balloon means the loan is maturing and there is still a balanced owed. Amortization in simplistic terms for this discussion: 20 year amortization means they are basing your payment amount on a 20 year term. So with a commercial loan with a 5 year balloon (maturity) and a 20 year amort you will be making payments as if you have a 20 year loan but it matures in 5 years so there will be a balance left. You either need to pay it off, renew it or refinance it.
4) Most banks want you to have your own money into the deal. Sometimes they will allow 15% of the down payment to be cash from you, leaving 5% for owner financing if the bank is financing 80%.
I definitely agree with the other posters on this thread that you still have some learning to do. Hopefully we have helped in that.
More information is needed to accurately evaluate your deal, but based on what you've provided...
1) Any US bank will absolutely require a down payment, usually on the order of 25% and perhaps more...there will also be a reserve requirement. Expect the banks to hedge their risk since this is your first MFH deal. But that doesn't mean you have to use your money for it. There are many ways to make this kind of purchase without using your own capital...seller financing, private money and angels are all great options.
2) Type of loan and terms is contingent on lending entity criteria, deal parameters, buyer qualifications, collateral value, et al. You may have to pay a bit more to get into your first deal...the value add is education by doing.
3) Appraiser will determine asset value, underwriting will determine value to lender...low occupancy may factor. You may want to consider a bridge loan to reposition the property, then refi at 6 months into long-term commercial financing. Qualification will be largely asset-based for the bridge, then occupancy and debt-coverage based for rental financing.
4) Yes. Value in commercial goes up based on the NOI. Increase net income, increase value.
You are in the right place...BP has literally thousands of resources and posts that offer a free education to those seeking it out. You've got the take-action part going. Spend time networking, researching and learning...and your deals will come together through the power of knowledge and eventually experience.
Really? In reading "The Art of the Deal" by Donald Trump, all his early apartment and hotel deals, he just shook hands, went under contract, and the bank loaned him what was needed, plus construction costs. No down payment needed.
Rental Property Investor · Bronx, NY · Member since 2008 · 144 posts · 64 votes
9y
Joseph Gozlan
Hey Joseph you stated 25% of offering price is that one of the ways you determine an offering price. Can you please elaborate on that 25%. Thank you
Rental Property Investor · Bronx, NY · Member since 2008 · 144 posts · 64 votes
9y
I made an offer today on a 5 family house in the Bronx. Please let me know what you think about my analysis,calculations, and offering price.
Asking price..850,000
GR.....75,600...No vacancy added 10% for vacancy....75600-7560=68,040
Expenses...26,879.15...not showing management....Insurance......Gas
Took 50% of adjusted gross income
Which equaled..34,020
The cap rate with the price of 850,000 and NOI of 48,721 = 5.7%.
When I used the same 5.7 cap rate on the adjusted expenses and income the NOI was 34,020 the valuation calculated was 596,140. I made an offer of 536,000.
This is the response I received: the residential market in the Bronx has gotten very hot. The cap rates are are out the window. 2-families are selling for $650,000 so I think we’re just playing in different sand boxes.
Should I make another offer?