12 Unit deal

[Brad Gordner]

Re: $380,000

·$195,000 for acquisition

·$185,000 for repairs

·Seller willing to hold 25% of total in 2nd position

·Buyer puts 1st year of mortgage payments and taxes in escrow at time of closing

Subject Property: S. Williamsport, PA 17702

Property Details: The building was bought as a favor for a friend with the understanding that the building would be managed effectively, up-kept, and the bills paid. None of that has happened and the bills only sporadically and late.

Property currently has a mix of 4 – large 2 bedrooms, 5 – 1 bedrooms, 1 - office space, 1 – retails space (currently a Puff’s Tobacco Store) with room for an additional 12th unit, a 1 bedroom. Currently the ‘friend’ and his family occupy 3 apartments and the office space (they will be gone), 2 – 1 bedroom are rented, and, as mentioned above, the retail unit is rented by Puff’s. The office space would be converted into 2 – 1 bedrooms.

There are many citations for codes violations from South Williamsport. Those would be some of the first things taken care of when rehab commences. In addition to these violations, there is just a lot of deferred maintenance in general as well as lots of trash removal. Utilities all need separated, apartments need updated, and new windows through-out.

Proposal: I have broken this project into 4 phases:

·Phase 1

§Fix code violations

§Update 2 apartments

§Finish 1 apartment (framed already)

§Separate utilities for all 3

§Rent apartments

·Phase 2

§Update 3 apartments

§Separate utilities for all 3

§Rent apartments

·Phase 3

§Update 3 apartments

§Separate utilities for all 3

§Rent apartments

·Phase 4

§Convert office space into 2 – 1 bedroom apartments

§Separate utilities for both apartments

§Rent apartments

After completion the building's owner will pay just taxes, insurance, trash, and house electric meter. Given those factors and the fact that it's located in a prime location in South Williamsport would support a CAP rate as low as 7%. 8% ($704,250) is realistic but for the purposes of this proposal I am going to use 9% ($626,000) as the estimated ARV.

4 – 2 bedrooms - $650 - $2,600 - $31,200

7 – 1 bedrooms - $450 - $3,150 - $37,800

1 – Retail (Tobacco Store) - $600 - $800**-$9,600

**Rent here is low and should be around $1,000 p/mo. Rents will be raised; I will include $800 in the calculations for the rent of the retail unit.

1 Month Gross Total: $6,550 x12mo= $78,600

10% (5% Vacancy & 5% Maintenance Reserve) - $655 x12mo= $7,860

Taxes, Insurance, Trash, Electric: -$1,200 x12mo=$14,400

Monthly NET income before debt service: $4,695 x 12mo= $56,340 / .09 (9% CAP) = $626,000

Assuming an interest rate of 7%, the aforementioned 25% down from seller, and a 15 year term provides us with a monthly payment of $2,732.44 which annually is $32,789.28.

NOI $56,340 / DS $32,789.28 = DSCR of 1.718

After the rehab we will have approximately $240,000 in equity, approximately $22,000 per year in the bank after all bills (insurance, taxes, income taxes, debt service), a renovated 12 unit building with all separated utilities, located in a desirable location in South Williamsport, and the bank will have a LTV of 46% after it's complete.

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That's the proposal I sent to the banks. It would, of course, be slightly different the hard money route. But the end result would be nearly the same.

I have a 670FICO. It was over 700 beginning of summer but I applied, and got, 4 net-30 accounts for the other business but they still ran my credit and, as a result, crashed my score a little bit. I also have $50,000 to put in the game.

What's everyone's thoughts? I'm still fairly new to the RE game, so critique as harshly as needed! Always looking for more input on what to present and how to present it for best results. How are my numbers looking? Lenders, is this what you want to see? Investors, is this something close to what you send lenders?

I also send pro-formas with the proposal.

What I send for the experience section that some loan apps have: "In a seperate business I bought, rehabbed (had a GC but I bought all material and watched everything he did), rented, kept, and refinanced a 6 unit. Snowballed the profits + other cash into a 9 unit building in downtown Williamsport (8 apartments 1 restuarant). Bought a 3 unit this past July and a house to flip (I'm the GC on this) this past August which is nearing completion."