6-Unit with Owner Finance

[Andrew Hofing]

Is this a good deal for a first Multi-unit?  I'm kinda caught up because of the balloon @ end of finance.  

Seller Financed Terms:

Sale price: $165,000

15% upfront cash deposit and $1538.27/month for 60 months with a balloon payment due at the end of the term.

Interest rate: 2%

The monthly payment of $1540 would encompass the principal, interest, taxes and insurance.

$553.35 would be applied to principal

$153.37 would be applied to interest

$831.55 would be applied to taxes and insurance

Total payment of $1538.27  or 

$165K for the building with 15% down and $1525/month for 48 months

Gross Annual Rental Income = $37800 or $3150/ month

Annual Operating Expenses

Taxes & Insurance $9978.60

Water/Sewage $3600

Waste Management- $1200

Gross Annual Operating Expenses = $14778.60

Net Operating Income = $23021.40

Or $1918.45/month in positive cash flow

Cap Rate = 14%

I'm thinking of trying to negotiate the purchase price down a bit as $165 is above market value.

[Mehran K.]

@Andrew Hofing

True, something is off when the 4 year note payment is LESS than the 5 year...His terms on the financing should include: 

Sales Price($165k), Down payment(15%-$24,750), Interest Rate: 2%, Amortization (20 years? Find out exactly), Balloon (60 months/5 years)

All that information should get you exactly what youre P&I Payment to him. The tax portion you can figure out/estimate by getting an actual copy of the tax bill. The insurance portion you'll get by contacting YOUR OWN insurance provider for a quote.

NOI: Just assume that the NOI/numbers he provided you mean nothing. You'll need to verify this on your own.

Rent: I'd get the unit mix for all the units in the property(bed/bath) and also GET THE ACTUAL LEASES for each unit so you can calculate the scheduled rent on your own. Verify this scheduled rent for those units with what the market rent is for your area (what other units of this type are renting for). Make sure that all checks out!

Ask him for his rent roll/bookkeeping for the past year or 2 to verify that these tenants are actually paying this rent. You'll also see who's paying on time and who hasn't. You could even ask for bank statements to verify he's depositing these checks. (I've never done this)

Expenses: 

• Verify those numbers with ACTUAL bills over the last 2 years. 
• Theres going to be "some" electrical charge for the common areas as well. 
• Verify that the Electrical/Gas are individually metered and are being billed out to the tenants, as they are not listed on expenses.
• You'll be having some sort of Lawn Care/Snow-Removal fee since it's a M/F property. Verify what he's already paying for this.
• I'd use 60% off the GROSS rent going towards all expenses as a MINIMUM (this includes taxes, insurance, PM fee[budget 10%], vacancy [budget 8.3%-10%], Water/Trash/Sewer/LawnCare, Repairs/Maintenence [10-15%])

Deferred Maintenance:

Is there any big ticket items that need to be fixed? Have you inspected the property?

Find out at least the install date/use life left on the following: HVAC, Electrical, Roof, Water heaters. 

Do the units need updating? How are the floors/appliances? You need to find out the exact state of everything you're buying so that you can account for any expenses you're going to have moving forward. 

Thoughts: This obviously doesn't encompass everything, just some stuff to be mindful of. I don't have enough information to evaluate the deal (verified rents etc.). The 2% rate is awesome if he's willing to offer that. I would ask him if he'd be willing to make the balloon 7 or 10 years out with a higher rate (maybe 3% for 7, 4% for 10).