All Forum Posts by: Lester Schmitt

I have had a contract accepted on a 61 unit boarding house with 4 storefronts. Currently the rooms are 90% occupied on a month to month basis and 1 storefront is occupied. There are tenants in negotiation for two of the other storefronts.

I am just starting due diligence so I have income figures, but have not yet verified expenses.To be conservative, I am estimating expenses at 60% of GOI until I have better numbers.

Gross revenue=$188,50
with the current 10% vacancy, GOI=$170,000
NOI=$68,000
Debt service for a $250,000 loan at 7% for 20 years would be $23,260 annually.
So my cash flow before taxes would be $39,000.

There is much opportunity for raising rents and lowering expenses.

I found this through a realtor so I can't talk directly to the seller. Realtor says seller not willing to hold any financing.

However, the bank that holds the current mortgage is willing to finance 90% of the purchase price, + needed repairs with 10% down. They want someone local because they feel the out of town owner has mismanaged the property. I am told this is not a short sale, but it must be a distress sale since it is the bank that is driving this from the seller side.
The bank, since they know the property, will waive appraisal and building inspection. I know this sounds odd, but I have verified this with the commercial lending officer at the bank.

This all sounds good to me, but I would like the group's input.

I have one other hurdle. When I contracted to buy the property, the source for my down payment was going to be to borrow from my 403(b) or HELOC. Since then, my wife had decided that she doesn't want to sign to allow me to borrow form either and they are both jointly held.
So I could buy the property, but don't know where my down payment will come from.

Any suggestion on how I can make money out of this situation? Wholesale it? HML. Private money for downpayment?

Lester

Uwe
The 5% Management fee is what was quoted me by a local management company.The property already has an office manager and handyman on payroll and their expense was already figured in to the operating expenses. the 5% would be what i pay myself or another manger for managing the staff and property

Uwe
The 5% Management fee is what was quoted me by a local management company.The property already has an office manager and handyman on payroll and their expense was already figured in to the operating expenses. the 5% would be what i pay myself or another manger for managing the staff and property

4.75- 5.5% fixed for 35 years

I have spoken with three lenders that will finance up to 85% LTV , non-recourse and with the down payment not sourced or seasoned. I won't mention company names here because there are other forums for that. One advertises regularly on Loopnet and they are currently at a rate of 4.75% fixed for 35 years. Another is a 5.5% fixed for 35 years and is open to rehab money on top of that.

The minimum they finance is $1,000,000 and that is part of my thinking in trying to buy this at $1,250,000. If I can partner with the current lien holder and he brings 15% into the deal, then the mortgage first mortgage will be $1,062.50

If the NOI were higher, then I could ask the seller for DPA and arrive at the seller's price but with 100% financing or near to that

If these lenders are good companies and my situation fits their lending criteria, I will be asking about them later in another forum

Your analysis please-

39 unit apartment building housing 76 students attending a local community college. All units are occupied.
Additionally, there is one retail space, currently occupied.

2008 Actual GOI with 5% vacancy/non payment factored in was $336,721
2008 Actual Expenses (not including a management fee) was $188,035
2008 NOI = $148,686

If I included a 5% management fee of $17,000, 2008 NOI would have been $131,686

I looked at this last May when these numbers were just available and we were negotiating in the range of $1,200,000 to $1,250,000. I had 100% financing lined up, 70% HML and private leinholder willing to subordinate 30% as a second, which the HML was willing to do. The owner had health problems and we never made the deal.

The positives of this deal are that there is positive cash flow after 100% financing, the student population in the area is growing and there is a need for more student housing. The apartments are newly renovated in the last 3 years, is up to building and safety codes, and the apartments are considered desirable for their size, building security, and having only one student per bedroom. There is empty shell space that is currently being heated that would accommodate apartments to house and additional 36 students. I am estimating that the 18 units to house these students could be built out at a cost of $12,000 per unit with annual rents of $8600 per unit.

The negatives are that the expenses are 56% of the GOI, There is no realistic way to split the utilities up since the two students occupying each unit share a kitchen There is deferred maintenance of the building exterior and carpeting. The positive cash flow is episodic in that most of the students pay an initial security deposit and then pay their semester rent when their financial aid is released once each semester. So except for the retail lease, the owners get a shot of income twice each year.

The owner I negotiated with last year has since died and the estate is looking to sell to pay the estate bills and taxes. they have relisted the building for $1350,000 and feel they need to get $1,250,000. They seem amenable to assisting with financing if they can get their price.

Since the 2009 numbers will soon be available, an improvement in NOI may be a reason to offer $1,250,000 if I can get it will high LTV financing.

The rents per semester were raised for this academic year by 13% so for 2009, half of that increase, or 6.5% would have been realized.

I am estimating that the 2009 GOI should be up by about 6.5% to $358,607. If the expenses remained 56% of GOI and I added a 5% management fee, then NOI=$358,607 x 39% = $139,846.

What is your analysis of this property at $1,250,000.

If I wanted to get 15% DownPayment Assistance from the owner and 85% financing from a lender, I would need an NOI of $150,000, which isn't there. I don't have enough saved to make a significant downpayment.

Another thought is to go back to the current lien holder and see if he is still wiling to subordinate 15-20% or, as Bill Gulley has taught me in another post, ask him to partner with me

So I am looking for your analysis to see if I have missed anything before giving up on this. What partnership or other arrangements might make sense for this property.

Very informative and helpful information.
What if the deal needed me to borrow enough to pay the estate $300,000 and the lien holder partnering with me wanted $400,000 in cash, then holding a $300,000 note.
What do I show to the new 1st lender prior to-or at closing to show what skin I have in the game (instrument such as a letter, a promissory note).

Previous owner sold empty 40 unit apartment for $700,000 and gave 100% financing to the new owner.
New owner renovated and filled the building. New owner died and his estate is anxious to sell.
According to the Realtor, the previous owner wanted the income stream from monthly mortgage payments and would want some of the lien payed off from a sale, but would be willing to subordinate some of his lien to a new first mortgage.
Original lien was $700,000.
Assume $1,000,000 purchase price so that the math is easy.
Assuming the private lien holder is willing, how can I use his equity as my down payment?
Could he split the lien into two liens- one for $250,000 and one for $500,000 (less what has been paid off over the past 3 years)

Using the $250,000 second lien, could I take over that loan and get a first mortgage for $750,000 to pay the $500,000 lien and the remainder to the estate?

Lenders will want skin in the game. Can I partner or Joint venture with the old owner/lien holder using their equity when applying for a new mortgage with an agreement to buy them out after financing has been obtained?

Any 100% financing options that will work using a lien holder willing to subordinate?

Lester Schmitt

Hello all,
I have been reading and enjoying Bigger Pockets for 6 months now and the experiences and knowledge of the members is, frankly, somewhat intimidating. Fortunately, everyone seems supportive and helpful.
I apologize in that I have had a few colleague requests and have not responded because I was not then ready to take action in investing in real estate.
Now, I am hearing about a SFH in my area that may be a good candidate for flipping or rehab and hold as a rental. If it comes on the market, I will need to be ready to respond. I will then be posting for your analysis of the property seeking some advice on renovation strategies.
In the meantime, I want to identify a source or sources of rehab loans which fund at or near 100% with a 70-75% ARV and pre-qualify for funding
Early on, I will be taking from BP, but I eventually would like to give back to the group.