Here's the Deal

[Phil C.]

Hello Everyone,

I am looking at an apartment building which appears to be a good deal. It is listed at 380k.

12 units - 1 studio, 8 One Beds, 2 two beds.
Rents range from 500 - 750/unit. Total RR is $6775/month w/ 1 unit vacant. Around 7400.month fully rented.

Property is in pretty good shape overall. Boiler, Roof and SIding are about 10 years old. The location is not great but not a warzone/ghetto.

Owner pays utilities (not seperatly metered). So Annual rents = 89k * 96% for vacancy = 85k * .45 (conservative on 50% rule due to utilites) leaves 38k left over for cashflow and debt service.
1200*12 =14.4k cashflow leaves about 24k for debt service.

Or if I use the 2% rule the building is worth about 350k which seems like a reasonable offer based on the asking price of 380k.

Now, the other part, I am not sure I can get the down payment that the bank requires and the seller does not want to do any owner financing. Any creative ideas on how to get some cash?

Thanks,
Phil

[Jon Holdman]

The deal is OK, with four caveats:
1) How much work is really needed?
2) Is there demand for the rental units?
3) Are you purchasing at a significant discount over similar properties?
4) Can you convert to tenant paid utilities?

If those are OK, this looks like a decent deal. The owner paid utilities is a killer. Paying for heat in MN? No way!

You could try to find a partner with some cash. In addition to the down payment, your lender is going to want to see reserves. With only $40K of your own money, I think you're going to need $60K or a bit more from another source. You'll give up a big chunk of your cash flow to that other source, either in a split of the profits or interest payments.

Do you know someone who would be willing to take interest only payments for, say, 8% for a few years?