First Rental - Is Bigger Better?
I am getting ready to take the plunge and purchase my first property. I was planning to start small - like a duplex or maybe even a four-unit, but I saw this 32 unit that looks enticing.
Owner is moving out of state. Property was build early sixties - a small complex of one story attached duplex units on slabs. Asking $750,000 but may take $700,000.
Owner says gross rent is approx $12,500 per month and Net income is $10,250. If that is true, even after prop management expenses of 10%, that leaves over $9000 each month to service the debt and pay the taxes ($8000/yr).
The thing is - the only 'cash' I have for any kind of a downpayment would be from my $80,000 home equity line of credit. Will a lender go for that? I have excellent credit (787 FICO), but this would be a commercial loan. What do I need to do to get a commercial loan for $700,000? Would the banks laugh me out of the place? Should I try to get a mortgage broker or perhaps an investment lender through a newspaper ad?
Any help would be appreciated.
Foggy
I am by no means a professional, but 80,000 down for a commercial property worth 750,000 is not going to happen. Try a hard money lender for the rest of the money to put down.
As far as i know, you would need to place 30% down on a typical commerical loan.
This would be a good question to ask the gurus. I am just learning myself.
Good Luck,
Harley[ Edited by Harley5656 on Date 10/06/2004 ]
Ask the owner if he would be willing to hold the 20% down payment as a 2nd mortgage... Give him a couple hundred dollars a month out of your cash flow, and give him a balloon payment of the balance after 5 years... See if he will go for it...
You could take the property over sub-to using the same proncipal (giving the seller monthly payments with a balloon after a specified number of years) - after you refinance of course...
This, of course, if the numbers work... Just some suggestions!!!
Good Luck!
[addsig]
I just purchased a similar complex for 1,000,000. I put 100,000 down and financed the balance. The two banks that bid on the loan did not have a problem. (five year balloon)
Good Luck
The answer is that you have to shop the lenders in your area. In my area, the lenders will only go to 80% financing with no more than 5% seller participation. This is on a 15 year amortization and 5 year balloon with a note extension for another five years at the lender's discretion.
In addition, they are also looking for a debt service ratio of 1.3 or better with management expense included in the operating costs.