6 Unit property analysis = 58K

[Nick Rose]

I'm hoping to get some input on a 6 unit multi. 

6 Units, 58K asking price

Gross monthly income = ~2500-2800, tenants pay gas and electric.

Separate HVAC, separate electric meters.  1 large water heater for all.  8 year old pitched roof.  Certified by City.

The property is in a decent area.  Incomes are not especially high in the area, but definitely not a war zone.  Medium sized town with plenty of property management companies.  The numbers look great, however I have some issues:

1.  The interior is expected for an older home.  Beautiful stained wood trim, wood floors and each unit has claw foot tubs.  Subpar windows and the big issue is the exterior siding is wood and has been extremely neglected.  Although they painted recently, there is a lot of rot and I can see some holes thru the wood siding.  This is a HUGE home and I'm afraid of what I would find underneath the siding.  

2. There are many furnaces, and I'm being told they are over 20 years old.

3.  The seller seems very aloof.  It took over a week for them to reply and they have no idea what the rents are.  They recently hired a management company 2-1/2 months ago.  I can determine market rents and what they are currently getting.  My issue is, he has no idea what the tenant qualifications are.  Told me via email "tenants are not rich...probably all have bad credit and work for min wage."

4.  The seller will finance with a 5 year balloon, however then what?   I could set aside money to pay it off or try to get bank financing after 5 years.  From what I have found thus far, not many commercial lenders care to finance such a small property.  I'm trying to make sure I have a sound exit plan.

Any input is appreciated.  I do have cash for this property however I'd rather leverage as much as possible when possible.  This is not my first rental, but it is my first multi.

[Clinton Cook]

I am still a newbie myself so I don't want comment with a lot of advice but I will tell you about my experience and maybe it will help. The owner I purchased from had 20 yrs of deferred maintenance and had not even been in a single unit in over 15 yrs. He didnt even have the keys to the units. He only raised rents one time in 20 yrs as well. It was however in a class A- neighborhood. 

It is a 5 unit that the owner held financing for and I used my cash to pay for all renovations. This allowed the owner to hold the mortgage and gave me the opportunity to go in and renovate, triple rents, and stabilize the property over the next year with strong leases. My exit was to refinance and pull 100% of my cash out while still maintaining good cash flow. I am potentially able to do this because I have increased the value of the property significantly in the process. From my experience banks will lend anywhere from 75-80% of the value of the property. 

The renovation part of the plan was a success. I have long term financing with the owner (15 yrs). However the refinancing part has been a little bit of a challenge. Very few banks are excited about it. They simply did not seem interested. I had to call over 25 banks and I finally found 3 that genuinely wanted to work with me. They were actually better terms than many of the mid size banks who were less interested or just found it bothersome. Focus on the smaller regional or community banks. You should find some. I am in the process right now of getting all the paperwork compiled so if everything goes well the plan will have taken a few months longer than expected but ultimately worked out. Keep in mind thought that almost all of the banks I spoke with have a 5 year balloon and typically will not amortize longer than 20 years. I did find one bank willing to verbally commit to a 7 -10 yr term depending on appraisal. 

Hope this might have helped in some way.