All Forum Posts by: Mariah Jeffery

I am considering a possible deal on a FSBO triplex and possibly offering a package deal including a duplex as well. These are in South Dakota. I live in Portland, OR but it's close to impossible to find cash-flowing deals here, so I'm looking at paying my father in law to manage these properties.

Triplex:
- Fully rented for $1,500/month
- 972 sf + 972 sf + 564 sf
- Owner pays water/sewer/garbage (avg. $70/month according to utility co.)
- Remodeled within last 5 years. New exterior paint, some updates to interior
- Good part of low-income neighborhood.
- 0.2 miles from my FIL/property manager

If offering on this one alone, I will probably start off offering $125K and may go as high as $130K.

The seller has several other properties he is selling. The only other one of interest is a duplex. Here are the stats on it:

- Fully rented for $1,310
- 900sf + 800 sf
- Owner pays water/sewer/garbage (avg. $65/month according to utility co.)
- nice middle income neighborhood with mostly single family homes, good school district, views
- New sewer mains, exterior paint, and roof put in ~3-5 years ago
- Asking price $149.9K

I know the duplex is not great from a cash flow perspective, but I'm wondering if it's worth taking less cash flow due to the better neighborhood and therefore, better tenants and potential for appreciation, assuming I can get better than the asking price. I was considering starting off with an offer to buy both as a package deal for $250K. Then I would possibly go up to $255K-$260K.

Any thoughts?

One thing I should mention is my FIL charges on 5% for property management, but if that no longer works out we will have to pay 8-10% to a management company. He does an excellent job on the duplex we have now, but I'm afraid he won't have time for 7 units.

Another question is how to go about this when dealing with a FSBO. I communicate with the seller by phone and mostly email. Should I email back in forth with him until we settle on a price, or send my first offer over in the form of a contract? With a package deal, can I have one contract for two properties, or does it need to be two contracts?

Thanks for your help.

Mariah

Bryan - I don't believe any lender would do 100% unless it's hard money, but please let me know how this one goes. I'm having trouble believing some of the ones that claim they can do 85%. I wonder if they plan to lure us in and then after we've paid the fees, they tell is the rate will be much higher. I would love to hear from some investors here on BP who have worked with some of these lenders who are quoting too good to be true numbers.

Erica - I still have a few calls to make, but the Fannie Mae DUS lenders I've talked to so far insist that 80% is the highest LTV Fannie Mae will go.

I'm interested in purchasing an apartment building for about $1.1M. I have enough cash to put 15% down. Are lenders doing 85% LTV commercial mortgages these days? If so, will it be an 75% and a 10%? Will the rate be higher than if I were to go 80% LTV? My credit score is 795 and I only have one small mortgage for debt. I also only have one investment property so far, a duplex. Will lenders be concerned about me jumping from a 2-unit to a 20-unit?

When you go beyond the 50% rule and start trying to estimate expenses in more detail, what do you use to estimate maintenance and repairs for an apartment building of say, 20 units? I know there will be a big difference between a building that was built within the last 5-10 years and an older one. I'm looking at one that was built in 1977 but has had a new roof, new windows, exterior paint, and a few interior improvements within the last 5 years. For my 1951 duplex, I use 20% of the rent as my estimate. It's been much less than that, but I haven't had to replace a roof or paint the exterior yet, so I figure it will average out to be about right. For a 20-unit building, shouldn't it be lower due to economies of scale? Changing the estimate from 20% to 15% improves my cash flow by $700/month!

What is typically the smallest # of units HUD will lot at? Are there any other requirements for the HUD loan?

Is it possible to get a small business 504 loan to buy an apartment building?

Thanks.

Thanks, Jon. Most people in this area act like I'm crazy when I tell them about the 1% rule because they think I'll never get that. Especially given that I'll only invest in at least moderately nice areas. I do have another one out of state that I used the 1% rule on, and it has worked out nicely for the first 2.5 years (although I've never had an eviction or major problem, yet). It's good to be reminded that things can and do go wrong, so there needs to be a cushion for that.

Good idea on rents. I'll give it a try.

I'm in the Portland metro area. Getting cash flow in this area at all is difficult, and meeting the 1% rule is near impossible. However, I've been searching for two years and occasionally find something close.

Yesterday, I looked at a duplex in a good neighborhood a few miles from where I live. It's bank-owned, asking price of $160K. It's in pretty good condition with a few cosmetic repairs needed. It even had a new roof and new exterior paint recently. No more than $2K-$3K in fix-up costs should be needed.

The main problem is I don't know how to estimate the rent. Each unit is 810 sq ft, 2/1. I thought $750 and a friend with rentals in the area thought $750-$800, but the one comp on the same street shows 800 sq ft units renting for $650. Also, these same units were renting for only $525 in 2005, but the tenants were long-term and had not had their rents raised. Water/garbage is included in rent.

Comps indicate the value after fixed up is ~$200K. A similar, but larger, REO duplex in the area sold for $10K ABOVE the asking price 4 months earlier.

My question is how much to offer. I was thinking $150K cash when I thought the rents would be $1,500, but now it seems like the rents might be a bit high. Strictly going by the 1% rule, I'd have to subtract the $100/month utility bill from the rent to arrive at a price. But then I realistically would probably never buy something.

At $150K, if I take $120K back with a 20-year HEL, I'd basically break even the first year before taxes. My W2 income is high, so the tax benefits will be considerable.

I don't expect people on the internet who have never seen the place to tell me the magic # to offer. However, any guidance or insight would be appreciated.

Thanks,
MJ

I met someone at a local real estate group meeting who has two houses that she financed through hard money loans thinking she could refi them immediately, but that was in the days of looser credit. She has more than 4 mortgages already, and no lender will talk to her. We got to talking and I mentioned that I have an 800 credit score and only one small mortgage. She proposed that I refi one or both of her properties for her to take advantage of my good credit, and put the loan in my name but title in both of our names. She thinks she can rent it out for positive cash flow. She proposed that I take all of the tax benefits and we split the positive cash flow, after a certain accumulation in a reserve fund, and then she gives me some percent (which we did not discuss) of the profit on sale. We would form an LLC and have a contract to work out the legal issues.

Does this sounds legit? How would I buy it from her so that the mortgage is in my name but title is in both of our names, yet I still purchase at < 80% LTV? The loan that she needs to pay off the hard money lender is for $325K, and the house is worth about $425K, so there is a fair amount of equity.

Thanks, MJ

Can someone please give me a rough estimate of what interest rate I should expect to pay for a 16-unit apartment complex? I would prefer a 30 year fixed loan, but I'm not sure what is typical for commercial. I have 790+ credit score and would be able to pay a 30% down payment. Cap rate is ~10%. I'm not sure what other info is needed.