Buying Apartments NEED ADVICE!!!!!!
I'm 19 years old and I found these apartments that are in really good shape and are pretty much new. There are 48 apartments 24 have 1 bedroom the other 24 have 2 bedroom. The Asking price is $1.4 Million. As a 19 year old its hard to find the money for these apartments, who should I go to? Banks?Private Investors? Hard money Lenders? How can I get a hold of them? The only Idea I could come up with is going to the bank and presenting a presentation showing exactly how much I will be making and show them that I could make the mortgage payment. I checked with a couple of local banks mortgage rates and I will be grossing around $7,000 a month (if I did the calculations right) excluding repairs every month, which shouldn't be much because of the shape of the apartments. The hard part is just getting the money, I found the property, I just need the money. I'm just asking for some professional advice! I am going to interview the property owner in a couple of days, here are some questions I'm going to ask him, if you think I should ask any more questions please tell me.
Questions for the Apartment Owner:
Why are you selling the property?
How much work does the property need?
What will it cost to repair the property?
What is the current market value or the after repair value of the property?
About on average what do you pay every month on repairs?
What is the asking price of the property, how did you get the asking price?
What are the apartments appraised at?
Do you use a property management company, or do you manage them yourself?
When was the property built?
Are there any utilities included in the rent?
About how much do you pay on taxes every year?
What is your vacancy rate?
How many tenants are currently living in the apartments?
Do you have a history of how many people are living in the apartments month to month?
What is the current rent you are charging for a one bedroom? Two bedroom?
On average what amount do you gross every month, do you have a month to month history of the last couple of years?
Lots of places to start, but let's start from the money. Do you have the money for a down payment? You'll need about 20%. Also, it doesn't really matter what you'll gross. The bank will be concerend about debt coverage. And you should be concerned about your cash flow. Anotherwords, what will you net per month after taxes, insurance, utilities, incidentals, and mortgage serviciing. If I was looking at this place and the cash flow was less than $4,800 per month, I wouldn't be interested. By the way, you can calculate debt service coverage ratio by dividing the NOI by the annual total of your mortgage payments. Most banks want to see a ratio of at least 1.2. And don't use the sellers numbers when you calculate things. Make sure to do your own research. I've never found a seller who reported their tax liability accurately. They'll also tell you that you can easily raise rents by X amount. Just make sure you know whether that's really true or not. Don't just take the sellers word for it.
And that brings us to the questions you're going to ask the seller. The questions you've listed are okay. But again, bear in mind that the seller wants to get rid of the place. So their going to make every answer sound more positive than it probably is. When you ask something like, "How much work does the property need?", the seller will likely only talk about the very obvious things. They may not tell you anything about some of the more serious but hidden problems. That's what you'll need a really good inspector for. I'm sure others will suggest additional questions to ask, but I would just remind you again to make sure you come to all your own conclusions based on your own info. Don't think that if the seller tells you it'll cost $10k to do the roof, that this is what it'll really cost you. Find out for yourself.
Good luck.
[addsig]
Good Post Alex. He is right, I would also add that you should look for a partner that has the monies needed for the project. Not only will they provide the needed funds, but they could also give you some more insight as to how to ask the questions and what the spreadsheet should look like. Dont forget that most of your questions will be answered when you get the financials on the place, and reason for selling.
Good Luck,
Kyle
Is it a good deal??? Not in terms of cash flow, but in terms of how much equity you're buying into. It will be tough to find cash and partners for a FMV deal. How much are you buying it for vs. how much it's worth???
I'm guessing that you're saying it's a good deal because it will cash flow a certain amount. Wrong way to go about it.
Figure out 4 things:
1. Why you want to buy it
2. How to buy it.
3. What you'll do with it once you've got it
4. How you're going to get out of it and/or make your money.
Once you can thoroughly answer those questions, you'll be ready to approach people and present the deal to them for partnerships.
YOU NEED TO KNOW THE NUMBERS!!!! I can't emphasize that enough. WHat is the:
GSI
GOI
NOI
Vacancy rate
Cap rate
DSCR
on the property???
Run those by us, and we'll let you know if the deal makes sense or not.
I'm 27 and my first purchase was a 24 unit complex. That said, I've spend a lot of time working with multifamilies (15 years) and have spent TONS of time understanding the financial side of buying them.
You can do it. I think it's great to think and dream big....but don't get in over your head.