Possible good deal on 11 unit multi family. - questions for owner

[Wes Harrington]

Hi guys,

so I am looking into an 11 unit multi in my area.  its currently set up as an extended stay hotel/apartment.  its in a good area in regards to minimal crime, strong local university near by, steadily growing city (not exploding).  my wife and I have done 1 flip, 2 buy and holds and have really been wanting to move into the multi space. I would love to hear input from the community about specific questions to ask the owner/agent.  We will likely be borrowing private money for down payment as the seller is open to owner financing at this time.  here are the numbers:

11 units (1bd/1 bth).  With office room.  Fully furnished, wash/dry connections in most units, new flooring, metal room, brick construction. Units 550 sqft.

Price: $399,000

Occ: ~90%

Rent: $225-350/week depends on time of year

Gross in 2015: $150k

Down payment: $150k with seller financing beyond that.

So, what other questions would you have for the owner? With my due diligence what else should I look at (as I have only delt with SFR)? If there is anything else you need to know, I will let you know.

Thanks

Wes

[Salvatore Lentini]

Hi @Wes Harrington

When @Jeff B. said "divide the P+I into the NOI and that = DSCR"

P is principal
I is interest

So P+I is your monthly mortgage payment (without taxes and insurance because those numbers will go into your expenses instead)

NOI = Net Operating Income.

You get NOI by taking your gross(total) rents for the year and subtracting out your expenses.

DSCR is Debt Service Coverage Ratio.  You get that number by taking your monthly NOI and dividing it by your P+I (monthly mortgage payment).  The higher the number the better the deal and the more attractive it is for a lender.  For example: if your monthly NOI was $8,000 and your P+I was $8,000 your DSCR would be 1.0 ($8,000 divided by $8,000).  But if your monthly NOI is $10,000 and your P+I is $8,000 your DSCR = 1.25  Basically it means you have 25% more available cash each month than your loan payment.  Obviously, lenders like to see as much padding as possible because it means your more likely to be able to handle vacancies, a softening rental market, or any other unexpected scenarios.

How are you planning on financing the deal?