Another commercial mortgage bites the dust! (with stats and pics)

[Steve Vaughan]

It's kind of with mixed emotions that I satisfied the mortgage balance yesterday of an 11 unit mixed-use asset I've had since 2003.  Saying good-bye to something you've had that long - even if it's debt- is weird :)  

The balance was only $64k, but the payment was $1696/mo. I was just going to let it die a natural term death in 2019, but it was messing up my DTI. I was looking into refinancing a sfr or 2 and this was the elephant in the room. I am asset-heavy and haven't had a w-2 since '02. Even though I could stroke a check and pay off the house I was trying to refinance, I was having a hard time getting a little $100,000 cash-out refi loan!

I bought this old building, built in 1906 and on the registry of historic places with 2 levels and 10,400 sqft, 9 apts & 2 retail spaces - from a motivated bank seller for $260,100.  The buy was $250,100 + a rehab acct of $10k to rehab the plaster-dripping shell of a commercial space.  

I've included an after pic of the commercial space and an apt. We exposed the brick, refinished the floors, did a drop ceiling  and added new electric, comm and hvac. 

 I dealt with the community bank CEO directly.  He was willing to take a chance on a 32yo kid with only  a crummy temporary part-time job and 1 rental house and aspirations to be a real estate mogul! (as long as we closed by end of Q3) We closed Sept 28th, the last business day of the qtr. He wanted this asset on the other side of his balance sheet Q4.  Keep end of quarter in mind if you ever negotiate with a small bank!

For the purchase, the bank carried 90% (80% if you include the $25,000 3rd mortgage on my house in CO) over 20 yrs with a 5yr call and rate adjust.  The original rate in '03 was 7%, ending was 5.25.  I had to report my PFS and tax returns every year up until about 3 years ago, I guess when the balance got  low enough that they left me alone.

The building now is insured for over $800,000 rebuild and easily worth $500-600.  It brings in about $6k per month, with cash-flow  of about $3.8k now without any debt service.  I have an on-site maintenance guy, but no PM. The cash-flow would be better but no way to separate water/sewer service of $500/mo.  I should look into RUBS.

Here's my takeaway from this purchase:  I was in the right place at the right time, but I was in the market all the time.  Keep plugging away and keep your eyes open. Be IN the market.  Don't forget community banks that take places back.  In your county assessor sites, do a name search of the community banks in your area and get to know them!