Help With Analyzing an 8-Plex

[Dave Younts]

I could use some help with this one.  

My current situation: 

- 1 SFH ($500k market value, $340k mortgage, breaks even on cash flow but is in the hottest zip code for appreciation in the city right now due to major commercial projects nearby).

- I also have a mortgage on my primary residence ($280k value, $180k mortgage). Therefore, my debt/income ratio is tapped out right now.

- $15k cash.  $190k available at 4.0% (prime+0% floating). 

Goal: To buy my second investment this calendar year, preferably MF in order to get some cash flow.

Deal: 8 unit apartment building in a really hot area of the city that is growing fast and is walking distance to uptown. Previously owned by Tricon American Homes. They specialize in SFHs and divested this last week as part of a bulk sell off of their MF assets. The LLC that bought the bulk portfolio has now listed this.

- All 8 units rehabbed in 2012 with wood floors, new cabinets, etc.  Exterior of building obviously got a refresh because its much nice than the building next door which is identical.  

- Current rents: (1) $900, (2) 700, (3) 669, (4) 695, (5) 750, (6) 711, (7) 650, (8) 645.  TOTAL GROSS RENTS: $5720/month or $68,640/year.  All units are exactly identical (same 2BR/1BA, 675ft2).  Unit 1 was leased last week for $900/mo.  Sellers claim that the previous owner, Tricon, was not charging market rent on the other 7 units and that we should be able to get $900/mo on all 8 once their leases are up.  Gross rent would then be $86,400/year.

- Taxes $2400/year. Tennant pay their own utilities. No HOA.

- I am working on finding financing for the deal since I have never worked with commercial property before.  Any recommendations?

[Mike Dymski]

I'd recommend calling around to community banks and credit unions. They have a larger appetite for small multifamily than the larger banks. Have the following ready (1) prior two years tax returns (2) personal balance sheet (3) schedule of real estate owned (4) rent roll for subject property (5) trailing 12 month P&L for subject property and (6) your deal analysis. The schedule of real estate owned is just your SFR rental in a certain format...google it and you can find some examples or PM me and I can share my format. This will provide a professional package of information and they will likely request it regardless. Feel free to start making calls to gauge which banks and credit unions have an interest in you and the property. Below are also some general guidelines around commercial qualifications:

Foreclosures = none

Bankruptcies = none

Credit score = 700+

Net worth >= loan

Post closing liquidity >= 9 months of debt service

DSC > 1.25x

These vary by lender, borrower, and property.