5 unit apartment question on financing

[Al Phillips]

I am considering buying a 5 unit apartment building.  What should I expect to pay (interest rate) on a 71% commercial loan to a bank and a seller carryback 2nd mortgage to the seller.  The seller is willing to take a $40,000 2nd mortgage, interest only, at 5% ( $167/mo).  Is this a good rate?

Also, will a bank allow me to finance the complete purchase of $100,000 with the bank and $40,000 with the seller?

[Jeff Kehl]

@Al Phillips I've done a few deals like this where the bank provides the bulk of the financing and the seller provides the rest so you are in with no money. At first blush this seems great and you wonder why you wouldn't do it.

But make sure to do all of the due diligence around whether it is really even a good purchase in the first place. Just because you can own it with none of your own money doesn't mean you should.

Getting a property to cashflow when it is 100% leveraged is very hard.

And if it needs a lot of work because of deferred maintenance or is not in a great area or you don't have the resources to see it through to a refinance it can be a very bad idea.