This is my first deal and I would like to know if I should?

Question

I am trying to put my first 4 unit property under contract and here is the deal:

I went on zillow and found a property I liked. I called the listing agent and he said that his client did not want to give up the financials until you offered on the property. Since this is my first deal that was a deal breaker for me. The listing agent on that property sent me over a list of 1-4 unit properties in an area that he has been in for 30 years.

I have had a nightmarish time finding financing:

Heloc not enough equity in my home

Traditional financing was an issue because I own a home that is worth 600k, but I owe 498k. The 6 banks that I have contacted have all told me that because of my mortgage on my residence, taking on another mortgage on an investment property would put my debt to income ratio where they could not lend to me. They did say that if i rent my primary home out they could give me a loan for the investment property. I make a decent living and did not think that would be an issue. I would appreciate any thoughts on this one. I tried to get a personal loan from my bank that I have been banking with for years. First they said the personal unsecured loans were 11% and then they denied my request.

3 months ago I had reached out to about 10 hard money lenders and kept a contact sheet with their terms in it. The one that had decent terms ( you make that determination ) I call and the gave me a pre approval. What I do like about hard money lenders is they only care if the analysis numbers are good.

This is a 4 Unit Multi Family Property and the tenants just have signed a 1 year lease.

I want to submit and offer of $185k, the price has been dropping on this property. It is listed at $204k. Please let me know what you think about the every part of the deal. The initial purchase, the rehab, the refinance, and the cash flow. To me it seems like a steep price as far as the initial loan amount, but it will still cash flow and I should be able to get all of my initial investment out of the refi.

John Leavelle · Answer

Howdy @Curtis HarveyHave you been checking with Portfolio Lenders (local banks and credit unions)? They are typically not as strict as the conventional loan providers.Also, your deal will not work as a Cash-out refinance (BRRRR strategy). You cannot get a loan for 100% of the Appraised Value/ARV. They will only provide you 70 - 80% loan to Value (LTV). Hopefully your ARV and the banks appraisal will be close to the same. The total of the purchase price, Rehab cost, Closing costs, and Holding costs should add up to no more than 70% of your ARV. That gives you the best chance to get 100% of your cash back.That means with an ARV of $234,000 your all in costs need to be around $163,800 if you want to do a Cash-out refinance.Hope this helps. :)

Curtis Harvey · Answer

@Jo-Ann Lapin What other information would you like to know about the deal? As a lender what do think about the financials and could you have provided a better terms for a first deal?

Curtis Harvey · Answer

@Erica Williams thanks!@Andrew Johnson You may be right about them having something to hide. Thanks for that thought!

Andrew Johnson · Answer

Curtis Harvey Seeing financials is always valuable. Here are the rents vs. here are the collected rents can make a massive difference. Everyone has financials of some sort, you need them for tax returns. Unless you're crazy and just guess at collected rents, property management costs, repairs, maintenance, etc. I suppose some people do that but I 100% assume that if they can't supply financials there is something to hide. If the financials were strong (repair costs low, 100% collected rents, etc.) you'd tout them as it makes a property more valuable. While financials are often doctored to make them better than they appear you at least have a starting point.

Erica Williams · Answer

You've done your homework, listened to advice, and opinions. The forecast of appreciation speaks. Best wishes

Curtis Harvey · Answer

@Tim Shepstone I have seen the financials. I have the rent roll, the expenses, and how the property has performed for the last 2 years. He has also given me the repairs that have been done with receipts from the prop management company. The offer has not been accepted yet. I have a pre approval and I can make an offer now if I like. You are right, I can add a contingency in the offer for that. Some owners do not want to just release all of their financial information to just anyone. The property is located in Fresno near Fresno State University. The property show very good appreciation. That is a valid question about when a tenant does not pay rent, but I would rather 1 of 4 tenants in a fourplex miss a payment rather than the only tenant in a sfh. It is about thorough vetting of tenants and putting money aside for that. The 5.25 is the refi rate for 30 years, the Hard Money rate as you can see was 13% because this is my first deal.@Andrew Johnson Seeing the financials do not always prove to be a good idea if you have the important information. Like rents, expenses, recent repairs, etc. You can make a solid decision. I know that most 1-4 unit property owners do not keep good book anyway unless it has great prop management. The T12 is a good thing if you can get it. I have an owner that I was trying to buy a property from and he said he is not giving out the financials even if you put an offer in. He said buy it or not, who cares here is my rents and expense and here is the cost of the property. lol. I passed on that one for sure. You are right about the offer thing. I make outrageous offers as well, but I am trying to offer at a price that I can make a profit.

Tim Shepstone · Answer

I would definitely make sure you have a pre-approval for the mortgage you based on the numbers above if you don't want to keep your downpayment into it. It could be hard to get the refinance done after repairs as well. Most lenders want you to own the property for at least 6 months before you can refinance, and there is a good chance your appraisal isn't going to come back as high as you are predicting. Having a back up plan is going to be key. It's also very strange that they want you have an accepted offer prior to releasing the financials. In my experience when something like that is happening, they are trying to hide something. You can write an offer so that you can back out if you don't like the numbers, but why would they not release them before? Are the tenants paying in cash and the landlord not declaring the rental income? You know until you see them! The numbers look reasonable, however my biggest concern for this property is where is located and what type of tenants you'll get. If you're 30 year outlook doesn't include any appreciation, it seems it would likely not be in a high quality area. My first 5-plex looked great on paper, but when people don't pay rent, the income goes down, but the expenses don't stop. With all that being said, is 5.25% the interest on your hard money loan? If so, please send me the lender. That's an outstanding rate!!

Andrew Johnson · Answer

Curtis Harvey Personally, I wouldn't make an offer on anything until I saw financials. Otherwise you're just shooting in the dark. That being said, if you could obtain a general prequalification letter from a lender I would hope that would suffice. So maybe a starting point would be to look for what you can qualify for so that you can vet properties. But maybe I'm the only person that thinks making an offer without a T12 is nuts...or rather...nobody would like the offer I would make... 🤔

John Leavelle · Answer

@Curtis HarveySorry, I only invest in the San Antonio are.

Curtis Harvey · Answer

@John Leavelle That does make sense. Thanks for your input. I just submitted my paperwork to a local credit union and we will see how that goes. Can you suggest one in California?