Ohio Deal (Too good to be true?)

[Herman Stevens]

I'm fairly new to real estate investing (and first post). I currently own a home (soon to rent), and I'm closing on a 4 plex (Owner occupy) soon.

In looking for better return, I came across this (and others):

http://www.loopnet.com/Listing/20018656/9539-Greenmeadow-Rd-Windham-OH/

I'm capable of running my own numbers, but looking at the numbers presented, why not? I would need to verify the numbers as usual, and I have some concerns. This may be overpriced for the market and posted higher due to seller financing and the COC return. Thoughts?

[Moshe H.]

Thanks @Herman Stevens. Quick tip: when you want to make sure someone on a thread sees your response, tag them with the @ symbol. I checked back because I saw you upvoted my response (thanks!) but if you hadn't I wouldn't have necessarily known to look back at this thread unless you tagged me.

I can only tell you my limited experience, which is that the vast majority of commercial lenders want 75% loan to value and 25% down payment so the investor has "skin in the game". Something tells me with only 4% in the game they will be wary. And it's something you want to clarify with a potential lender early on. Just yesterday I spoke with a local community bank that will do 20% on a commercial loan, so maybe you'd have better luck with a community bank, but he would not allow a seller carry back note (yes, I asked).

(Edit: you probably know this already, but anything up to 4 units is considered residential, can be loaned at 80% LTV on a 30 year amortization and will be sold to Fannie Mae or Freddie Mac. 5+ units is commercial, cannot be sold to FM&FM, and therefore has different guidelines. You're also going to look at probably a 20 year amortization and an ARM or a balloon payment.)

Be very cautious with a rural area that may be in decline. Your property will never appreciate, and when calculating your total rate of return on the property you'll have to take into account all capital expenditures you'll be making over the hold period, as well as SELLING COSTS (can be up to 8% or more) and the fact that in 5 or 10 years when you want to liquidate it, it might very well not be worth a penny more than it is today. If you take all that into account and you're still happy with the return on cash invested, then you can proceed with more due diligence.

Disclaimer: Don't take my word for anything. I'm no expert or guru, just someone that has read a lot, listened to a lot of podcasts, and talked with some sellers, brokers and lenders in the last 6 months.