Buy Apartment Property Without Down Payment?
I know everyone hate it when the lender request 20% down payment. I have noticed some article and investor mentioned that they are able to purchase apartment property without down payment like seller willing carry back or borrow from investor. Any more idea?
I have to admit it. I am tired of hear only rich people can afford to buy and down payment on commerical property.
so your cash on cash is what... about 10-12%
why bother when you can invest in muni bonds for 9% return tax free.
You need to start small, a house or a duplex, then move up to a apt complex. Get a FHA loan (3% down), move in the house for a year, then rent it. Then repeat. After you get enough houses you can do a 1031 exchange for a apt complex. Probably take 15-20 years though.
How about second loan toward down payment? since first loan can up to 80%.
You can get a seller carry back mortgage, to count towards the down payment. But the thing that most people do not know is that most banks will not allow the mortgage lien to be placed on the property you will purchase, so you will need a subsitution of collateral clause in the mortgage agreement to allow the lien to be placed on another property they may own, or some other real property all together.
The 2nd mortgage that the seller carries will need to be another property used for collateral, as long as it does not include the purchased property, which the banks will not allow.
Or you could get private investors to lend you funds for the down payment, if the numbers are right. They could be involved in a Syndication of some sort in which you will give some interest in the property, of course it is up to the investors if they are more interested in yield, or equity/profit.
Quote:
On 2009-03-04 15:55, spock21 wrote:
How about second loan toward down payment? since first loan can up to 80%.
I was told about a FHA/HUD loan that goes to 85% + allows an additional 6500/unit for rehab. 6.5%, 30-40 amort.
Sounds pretty good other than 120 days to underwrite
Here is a link for HUD Loans via multifamily.
http://www.hud.gov/offices/hsg/mfh/fhamie/fy97mie/data.cfm
Quote:
On 2009-03-05 12:11, cjmazur wrote:
I was told about a FHA/HUD loan that goes to 85% + allows an additional 6500/unit for rehab. 6.5%, 30-40 amort.
Sounds pretty good other than 120 days to underwrite
you can check w/ city/county records for building violations
Thanks...
The seller just made the offer that he would hold the note, and would not require payment until 6 months after purchase. The purchase price is 40k - 60k more than what I am willing to pay...
LOL...
I know 40k - 60k is nothing compared to the terms, but it is a complete shell. It will be a huge renovation effort and it just seems like I am missing something.
you can use the 6-mo of no mortgage payment to pay for the TIs to convert the building you your tenants needs.
Sorry for my ingorance...
What are TIs?
Tenant Improvements.
All the customizing to the building to secure the tenant.
Have a question - in your earlier post you said that you were securing financing, then you said that the seller was holding the financing. Is there 2 forms of financing? Seller and third party? Where are the funds coming from for the renovations? As for the 40-60K increase beyond what you wanted to pay the seller for the property - does it still make the deal attractive with that increase? Last thing - you probably have experience rehabbing a building of this size, but incase you have forgotten, things rarely go as planned in rehabs so allow for overruns, both of time and money.
_________________
Rob Beeman
Grindstone Financial
Hard Money Mortgages
[ Edited by commercialking on Date 03/12/2009 ]
The seller wants to finance the sale of property. I am in the process acquiring rehab funds (200k - 300k) via hard money.
For me, in order to make things work (including overages), the sale and rehab must fall in the 50% to 65% LTV after the smoke clears. Hard money eventually has to be converted...
The 40k - 60k difference "would have" went to TI, mortgage payments, and unexpected expenses...
THIS IS MY FIRST COMMERCIAL DEAL....
Thanks for the comments ITBInvestor!
I have yet to tie this up. When I do 1st think I do will be a full inspection for the issues you mentioned.
We are putting 25 to 30% down. This is what the debt service comes out to be on a 7.1% loan.
Any other comments are welcome.
Thanks,
jon.
From the age the following would concern me
asbestos
Lead based paint (there is a HUB (?) program to abate this)
Problems w/ sewer mains
Close to creek/river
Is it in a flood zone
Cost of insurance being jigh
Other
Turnover rate on apts.
Why would they accept $3M? Is the seller in a distressed situation? Vacancies are low and cash flow and returns are high. [ Edited by finniganps on Date 12/07/2008 ]
Commercialking,
Management fixer (increased presence and more active management, install RUBS, lower other expenses) and reposition to Class B+ in within 5-7 years through meaningful renovations.
Best,
jon.
Commercialking,
Thanks for the comments and information.
If your friend does in fact know this property, which is unlisted, and you are correct, as long as you factor in the reduced rental rates as compared to class A properties, this will still be profitable. Bought right (correct price), managed right (class B residents at correct rental rates), and sold right (to possible developer who might may knock down and rebuild as they are doing with others in the neighborhood) properties such as this can be profitable.
Please contact me with any interest.
Best,
jon.
Commercialking,
Thanks for your input. I appreciate your comments.
Would you mind sharing your Austin contact with me?
Let me know if you think I might be able to help on any of your deals. Maybe we can work together on a deal in the near future.
Best,
jon.
In my experience the largest uncertainty is maintenance. Your numbers could be close, but they could also be very light. I would suggest that you spend a significant amount of time looking over the maintenance expenses of the current owner.
A major contribution can be turnover costs. I have a situation where there is a very strong rental market so that there are many calls when there is a vacancy, but where it has been difficult collecting rent in this economy -- many 5 day notices and evictions with subsequent make ready costs.
To me your maintenance and repair costs look very light, but then you are in a position to justify your numbers.
Edmeyer,
Thanks for the comments.
Sounds like something most of us landlords are facing. Just another result of a tough and uncertain economy with cash strapt consumers. Not sure there is a way around that. Everyone is at a greater risk of losing their job in this type of economy, even entrepreneurs.
I was surprised to find out that a vacation bed and breakfast spot we frequent in Mendocino just went bankrupt. This place is worth well over $50M and sits on over 5 acres of beautiful coastline ocean front land (heritagehouseinndotcom). Not enough vacationers at a time when the company just finished a costly expansion.
Best,
jon.
How much equity are you putting in the building?
What is the current vacancy?
How are you calculating your gross potential income?
What is the actual income?
What is the GRM? IRR (how long will you hold?)? Cap rate?
Property was built in 1977.
5 Year hold
13.4% vacancy (year 1), 8% vacancy (year 2-5)
8.0% Cap rate based on purchase price of $2.27
Cash-on-Cash (avge annual) 12.6%