All Forum Posts by: Alexander Merritt

Hello BP Members,

I'm hoping you all can help me with some ideas of how to Finance the purchase of a small Multi-Family portfolio. I have not contacted the seller yet so I don't know what their situation is or if they would be willing to do any creative financing. I have about $40k cash available to use. I also own my house and have about $100K in paper equity in the house.

The portfolio consists of 11 properties and is currently 80% occupied. If my calculations are right, with 100% occupancy the portfolio will have just over 10% CAP rate which is good. The problem is that this is not a flip. This is a straight purchase with an asking price of $800K. If the properties need updating I could renovate the vacant units and increase the rent for those units. Does that mean Hard Money is out since they want 70% LTV? Even with a HELOC I don't think I would have enough for a 20% down payment for a bank loan. A Master Lease Option (MLO) could be an option if the seller is open to it and they own the properties free and clear (which I highly doubt.)

Any thoughts, suggestions, or ideas is greatly appreciated and thank you in advance.

- Alexander

I agree with @Benjamin Timmins however I wouldn't use the exact same screening criteria. You should use the same screening criteria as far as finances and criminal record goes, but as far as personality goes that should be more in line with your personal expectations. For your rental you might have a great tenant that pays on time and doesn't cause you any problems but then again you might not want to personally live with that person for one reason or another.

I did the exact same thing you are doing now and rented out spare bedrooms in my house. Personally I wanted to split utilities so that there was not "abuse" of utilities. However, this made more work for myself as I had to get all the bills, divide them up, get the extra money from them, etc.... For the first year I would have them split utilities. You'll use that first year as a baseline to determine how much your utility bills will be. Then next year you'll have the data available to decide if you want to continue splitting utilities, or just lump it into the rent.

Also, I found that doing all of my "land lord" duties for my roommates wasn't the best for the personal relationship. There was no ill will or fights or anything like that, but I found that my roommates view me in more of that land lord role, rather than a friend role. I think that was mainly because they knew I owned the home, rather than just another roomate who happened to be the one do divide up the bills to pay some other land lord. So most of the time we just did our own separate things and every once in a while we would do something together like have a party at the house. Financially though, it was one of the best moves of my life.

Hope this helps and good luck!

Good Point

Thanks for the link. I'll check it out.

@Mike H.

 Thanks for explaining that. You are such a seasoned investor with a huge wealth of knowledge that I always value your opinion and postings. I also really like that you take the time to write a response that explains in detail what you are trying to say, insead of just a 1-2 sentence response. It really makes understanding your point very easy... so thanks!

What is everyone's view on rentals in big cities vs out in the suburbs? Which would present more opportunites or would be easier to grow? What are the advantages/disadvantages of each.

Thanks in advance.

 Tax free?? Can you please explain that? @Mike H.

Hmm... buying personal residence is always a little tricky becasue IMHO it is not purely a "business decision" and there is some emotion there which tends to make financial decisions more difficult.

 So, first thing I would do is determine your max budget. You might find out that your max is (lets' say) $300k and you know your LL won't even accept that.

Second, tell your LL you are interested in buying it. That way you can strat to open dialogue with him/her and they know you are interested. He might feel relieved that he has a potential buyer already and not stress about if it will sell so he can pay the HOA fees.

Third, approach it like any other investment you would do. Do your due dilligence and go through the analysis. Talk with the HOA and ask them what the fees would be and why they are now taking this project on and why it is costing so much. Ask them if they anticipate more drastic construction in the future. Talk to a RE agent. Do you know any other people in the building that own their unit? Talk to them. Talk to the building manager. Talk to anyone/everyone.

Fourth, talk to your LL about seller financing. If he is looking to sell the Apt because he needs cash to support the HOA repairs for the other 3 units as you state, then he really only needs ~90K cash. If you put in an offer for 400K (assuming you can afford it), then you can ask him to do 50/50 seller financing. If he doesn't like that, ask if you put in a full price offer would he sell with the seller financing. He gets his cash for the HOA repairs (from the bank loan), AND he's now getting a stready stream of income from the mortgage payments for his seller financed loan.

Assuming you have used the analyzer tool, the next move I would make is... (again depending on the analysis) if you only want to spend $255k, then put in that offer and make it your "best and final." emphesis that is the absolute final offer and if the can't meet it, then there is no deal.

Well, @Ned Carey would probably have some great insite as he specializes in these types of deals in Baltimore.