All Forum Posts by: Andy M

Hi I've got a 3-family I purchased for cash 9 months ago for 305k in the Boston area. I put about 80k into the rehab. I'm now trying to finance the property to take as much cash as possible out, but my mortgage broker is telling me that because I don't have a regular job I won't be able to get the mortgage. I would have thought that since this would be a commercial investment mortgage (I don't live there) my income would not be relevant.

To wit: where can I find a market-rate investment mortgage in which my personal income does not matter?

Jay,

I live in Boston and consider myself a (part-time) real estate investor. One thing I would say is that the holy grail "50%" rule on this site is only a very general thing. If you rent out a condo for a high rent, say 2500$ with the renters paying the utilities, you will definitely be netting more like 75-80% of that 2500. The 50% rule more applies to places with low rents and owner-paid utilities.

I have some good properties in the Somerville/Cambridge area that might be interesting to you. I'd be up for a joint venture if you are up for it. I've got 100k in cash and 400k in equity in local real estate, let me know what you can bring to the table.

Hello,

I'm trying to value a note. Here's the basics:

Balance of 125k note due on 10/09. No payments before that date.
It's second behind a 60k first mortgage.
Property is assessed at 800k.

That's all I know for now. Obviously, most of the time
the mortgagee's credit, etc. comes into play, but in this case the LTV is so low it hardly seems to matter.

Assuming the paperwork is in order, what would you say is the market value for this note?

Mike and Co.,

I appreciate the comments. The main question is indeed if the proforma is justified, and if so, why has the current owner not already taken the steps to get to the proforma state. I have some rental experience, but nothing of this magnitude. As such, I probably would do best to partner with someone. I have enough cash on hand for a 10% downpayment, so I'd need someone else with at least that much to join me.

Andy

So a seller just offered to sell me his group of 5 apartment buildings in Cincinnati for 2.1m, holding no note. I'm looking forward to hearing what you guys think of the deal.

Here's the scoop:
Property generally in good shape, some newer updates, no major repairs needed. (Now naturally I'd do my due diligence and make sure the seller is speaking the truth here, but for this phase let's pretend everything they said is truthful).

current gross income: 468k.
current expenses:309k
current NOI:159k
current cap: 7.7%
current occupancy: 68%

seller supplied rental comps to justify (seemingly correctly) the following proforma:
proforma gross income:732k
proforma expenses:340k
proforma NOI:392k
proforma cap: 18.7%

$ PSF: 20.50
$/unit: 20,200
average monthly rent: $550

comp cap rates are in the 9% range, with /unit costs between 25 and 35k, PSF averaging 35-45.

So obviously the deal isn't that hot with the current rental situation, but the comps seem to support the existence of a strong upside. Let me know what you think, and if you'd be interested in either doing a JV or straight purchasing it from me.

Hi,

I'm going to be purchasing a apartment complex (or a few, depending on how much I have to put down) in the near future. I have a personal credit score of 750, an income of ~110k, and 200k in liquid assets.

I'm looking at a number of reasonably similar properties. One of the best is a 56 unit brick building in Michigan, asking 900k, recently renovated, gross rent 310k/yr, NOI 177k/yr, DSCR thus >2.

I'd like to know what mortgages might be available at different down payments. E.g. what terms could I get with 20% down, 10% down, or even nothing down?

Looking forward to some answers soon, I'm hoping to move quickly!

Andy

Hey guys,

So I just found a rather large property (for me anyway). The asking price is ~14.5M and the current NNN lease backed by a AA company gives a NOI of 1.45M/yr. The occupying company's lease has another 2 years on it at this rate, and then they have 4 options to extend for 5 years at fair market value.

Now, I'm thinking that 10% cap on a Class A building (built in 2000) is damn strong. The PSF is at 97$, seemingly well below replacement. The main problem seems to be that we could lose the tenant in 2 years. So I was thinking that I should call up the tenant, and ask them if they would be willing to go ahead and accept the first option at least (for 5 years more) in return for a somewhat lowered rent than fair market value would likely be in two years. I might even ask if they want to go for 10 years, again at a somewhat reduced rate.

Locking the rent in at a rate somewhat below market could somewhat lower the value of the building in the coming years (since the rates could be below market), but if we could maintain even a 9% cap rate (i.e. let them rent at 10% less than they are paying now) I can't imagine having trouble securing financing.

I mean 9% cap on a AA secured property for 7 yrs gauranteed would be amazing. Whatcha think?

Hi,

I'm wondering how you guys value notes?

If there were no chance of default or early payment of the note, then the note's value would simply be the sum of the time-discounted future payments.

Of course there is the chance of default, so the credit score of the person making the payments and also the value of the collateral secured by the note should be taken into account.

The person could also prepay the note (possibly with a penalty). Do you use historical data to evaluate the chances of prepayment?

Andy

John,

Yes, the major risk in this transaction is the amount of time it will take to get the property leased. It is indeed a major question as to why the owner has not already done so, as in it's fully leased state it would be worth twice the asking price.

On the plus side, I've actually already contacted a few lenders who say they might be willing to supply the money needed, since ~65% of the fully leased price is greater than the asking price. They might even be willing to loan an amount above the asking price, which would cover tenant improvements and holding costs until the leases come in.

It all depends on finding a flexible lender. I'm talking to a hedge fund right now who said that if the numbers I gave them are indeed correct (which to my knowledge they are -- but of course I'll investigate muich further) they'd supply the money for 2/3 of the equity in the deal. So I'd get a third with no money invested. Seems like a sweet possibility.

Andy

Mike,

Good point, the large vacancy is a big concern. I just got an email from the broker explaining a large law firm moved out of 45k sq.ft. in late 2006. He also mentioned that the quoted PSF range (15-22$) includes all expenses. I'm definitely going to look into this more -- it has potential.

Andy