Financing small apartment complex with little cash

[Scott Kelly]

Let me preface this with I am a newbie investor having only one SFR but found a small apartment complex that seems to be a good buy and seeking any advice I can get. It is not local to me but could drive to get eyes on the property. Lets get into the numbers: The property: 4 building 14 unit apt. asking $350,000 with 9.1 cap rate but I feel confident I could get it for less. Only recently full occupied by mainly college students. 8- 2br/1bth, 6-1br/1bth. Avg rent is $486.NOI @86% vacanacy and 54% in expenses (property management included) would be $31,706. Thats prior to debt service. My plan: remodel each unit as they come available. From the pics every unit but one I wouldnt want to live in personally. According to rentometer average 2/1 apartment goes for 700 in the area. So room for improvement there. As a room that previously was a laundry room but now a storage area. I'd want to get it operating as a LR again to bring in additional income. Water is currently paid by property management. If the numbers work get it submetered to have tenents assume their water expense. The problem: I have little cash to put into the deal.I recently purchased a primary residence and have a baby on the way. Should I get a HML or investors or just pass on the deal?

[Curtis Rouse Jr]

@Scott Kelly

Congrats on taking the plunge into the apartment community space. Based on the financials provided and doing some of my own analysis, it looks like a pretty good deal, I would just be a little worried about a 9% cap. The reason I say that is because this usually means the property isn't necessarily in the most desireable location (I could be wrong as market specific), but on the other hand you will be cash flowing from Day 1 depending on what your renovations are looking like.  It also helps that you are within driving distance and can check on what's going on. I like the value add play on this deal in regards to the increase rents, LR and RUBS you mentioned to implement.

With very little money to put into the deal, I would recommend trying to raise private capital or do a jv and partner with another investor giving up a portion of the deal. I wouldn't recommend HML for this deal especially with not as much capital because the int rate and points can get costly for this type of short term financing. I would recommend getting a bridge loan where the lender will wrap the renovation into the loan that will save you some money there.

If you need help putting together a financial package with underwriting (example on my website), please let me know as I have helped many investors free of charge. I hope this helps and let me know if I can be of any assistance!!!