Heat And Hot Water
Hey guys:
I am looking at a 20 unit building and the broker sheet lists Heat/hot water at 34,700 per year! Apparently oil is used. I know its cold up here in the northeast but this seems awfully high...
Any suggestions on how I might reduce this cost? Any ideas would be appreciated.
Thanks
That does not seem high to me for a 20 unit and it will be more next winter. I have seen renters regulate heat by opening windows. Also I have had an experience where, since they are not paying hot water and the building had a very large main tank, the renters were all taking 1 hour long showers in the winter and cranked up both the gas and water bills.
Check the building design see if individual heat and hot water tanks are possible. You can imagine the increase in property value that could be achieved if you removed all of these owner expenses. This will require cash to make the changes so you could structure the deal with a price that the seller would accept with a credit to you at closing to cover the upgrades (make sure your bank is ok with it - mine allows 5% of purchase price).
Are the rents market price for heat and hot water included? If not another option is that you could increase the rent but will have a lot of turnover/rehab/vacancy expense. good luck.
What price is the building? The heat costs as a percent of Rents?
For heating cost range as a percentage of rents I see from a low of 10% to almost 23%.
Ther is a company (wellspring uses zigby microchips?), that can submeter utilities, not sure of their costs. They seem helpful.
It is very hard to answer your question without more information. When you say "better" ,in what measure are you talking about( i.e. cash flow, appreciation, ease of management, availability of good loans, etc.)?
Other issues are how does a given investment match up with your investment plan or needs. We need more context.
As Ed pointed out it depends on what you mean by "better" 4 units and fewer qualify for FNMA underwriting which means you can get a high loan-to-valule loan if your credit score is good. This means the market of buyers is larger and, as a result, competition for units is higher and prices are higher (or perhaps more accurately cap rates are lower) and your only hope of significant profit is that inflation will continue to make your dollars cheaper.
On the other hand if you get out of the FNMA world then the units are priced where they actually make sense as investments (i.e.) at cap rates higher than the cost of money.
Oddly enough there is a second dip in the curve once you get over 100 or so units because now people with lots of money can "park" it safely and they will also bid down the cap rates.
So between 5 and 80 there is this wondeful niche where the small players are afraid to tread and the big players cannot afford to manage. That is where you want to live.
As to the issue of financing I think the prior discussion is a little misleading. It is not true that lenders require 20% down on commercial deals. Rather, lenders will not typically loan more than 80%. But they seem to be quite willing to allow the seller to carry back a 15% second or various other "creative" strategies for where the other 20% comes from.
Quote:
On 2006-03-27 22:09, commercialking wrote:
First project I did was a 35 unit. Put together a partnership to rase the downstroke. Did a renovation, raised rents a bunch. Made a nice piece of change.
What kind of terms did your partners get? Are they comparable to what they would get now?
to: glsmith
Well I tell ya about my first deal on a two family. My real-estate agent had a listing for sale from another one of her clients so I kind of got a inside deal on this one. They place was for sale for $85,000 and it was in excellent condition. Each unit had 3 bedrooms and each were pulling in $725 for rents. With a credit score of 650 I was presented with two options. Go FHA with 3% down or 100% financing. With each option the seller would grant me sellers concession. I went with the 100% with a 5% sellers concession. which means ultimatly this puts the total purchase price aroudn $92,000. Closing costs were around $6500 and basically the sellers concession paid for the costs and to make this deal even better he gave me a credit at closing for $5000 becuase the chimmney had to have a new liner put in it. The estimate he got was for $5000 so I went ahead and found a guy that would do it for $1500. Which in the end I walked away from the closing with not only having to put out virutally no money (with the exception of a $1000 down payment) but I walked away with a check for $5000 dollars. Evan with the 100% financing I took a higher interest rate but the numbers still worked so that I was pulling out $500 free and clear every month. Not bad considering I had virtually little money to start out with!!
My point is that this deal is a rare exception but if ya try hard enought ya might come across something similar. I guess I got lucky with this.
Check with your Lender. Some I have worked with will waive the prepayment if you refi through them.
mcole,
the loan i want to take out will not stand 2nd behind a neg ammor loan. I am new to buying comm property, so I am finding out that banks do not like to see these types of loans.
just need to go to a broker i can do 100% cltv behind an option arm all day
Hi Kate,
Thanks for the explanation. I didn’t realize you were trying to put a 2nd behind your existing Neg-Am to get cash-out.
But you’re right, not many lenders want to go behind a Neg-Am. GreenPoint used to do it -- at least they would on their own loans. But I don’t know if they would do it behind another lender.
As someone else mentioned, you could just do 100% on your next property. Or, as Ababish suggested, talk to your existing lender and see if they will do a full REFI and waive the prepayment penalty.
Hi Kate,
Another thought I had (depending on your equity) -- ask your lender if they will put a HELOC behind your Option ARM. I’ve had lenders do that with less resistance than putting a 2nd behind it.
I don’t know that I’m doing anything all that interesting. Right now, I’m just doing out-of-state rehabs and then selling on a Lease Option or Contract for Deed.
But I’m changing my thinking and wanting to just sell immediately and carry-back a 2nd for the bulk of my equity/profit. As long as I get my out-of-pocket back when I sell, it sets up a very nice cash-flow with no liabilities, obligations, or money tied up.
123 loans Will do a 100 cltv with 650 fico
loandude,
what are 123 loans?
123 Loans is the name of a lender. Actually, they may be just a brokerage.
A lot of lenders that used to offer 100% loans on investment property stopped doing those programs last month. But there are several lenders who will still do them.
[ Edited by mcole on Date 04/07/2006 ]
Thank you, I will look into 123. I think with this deal I am going to have to use private $ because of the time frame I need to get this done by. Thanks for all your help.
Kate
MCOLE OR LOANDUDESAC, NEED A BROKER IN CALIFORNIA OR MORE SUCCINTLY, I Found a lender which requires me to submit my loan request through a broker ...property in Sacramento, Ca
Thanks Rose... I will look into Aegis and the HELOC. I also found out that if we wait 12 months, that the pre-pymnt penalty is only $500.00. So we may opt for that depending on what deals come up in the near future.
Thanks for the response. I like this web site and the feed back.
Kate
yasir im in Sacramento myself, send me mail to chrisjkemp www.gmail.com
Hi there, I have a full 2nd Mortgage on an Option Arm. I purchased 100% financing. Maybe your talking to the wrong people. I am working with two lenders, one in Atlanta, one in Myrtle Beach and I am getting two 100% 80/20 5/1 arms right now with no problem. I also know someone else in CA, but she charges 2% orignination. These orther people are charging about 1%. But, you need a good high score. What is your score. Sounds like you need to talk to a few more people and get some advice. Call your lawyer he may be able to help you.
Hi,
World Savings offers this product, as does Bears and Stern. Bears and Stern offer a 100% option arm purchase product. I just used National City mortgage to refi a 2nd behind a neg am. Smooth sailing. Good luck!
I have heard interesting things about Boise as well.
I ran into a preconstuction deal on a cluster on 4 plexes..
Hello, Cjmazur and Rgvreia:
I just wanted to tak e a moment to thank both of you for your much appreciated replies to my recent posting information leading to contacts in the Boise market. I will check your profiles and get back to both of you, via email. This is what networking is all about and I thank you both for being there!
Hi Everyone,
I just read on the NARREIA site that Boise, Idaho is still growing despite alot of speculation on preconstruction development in the past year.
Can you guys provide me with a contact or a good property manager in that area for out of town investors?
Thanks.
Tom