Help Me Evaluate My First Purchases Please!
I'm purchasing my first investment properties and could use the advice of some of you expert investors out there. I'm buying four properties that have a total of fourteen units. Gross annual rental income is about $110,000, operating expenses are a little under $33,000. I am purchasing the four units for $518,000 and have a broker lined up that has a lender which will provide a loan for 100% LTV for all four properties. Also, the sellers are providing me with assistance to the tune of $23,000 which I hope will cover the majority of my closing costs (the seller assistance is in the form of promissory notes since the lender frowned upon any assistance over 2%). The debt service will cost me about $42,000 per year so my noi = is about $30,000 after a 5% vacancy rate. How do those numbers look?
The final numbers look great and retirement looks even better. Would like more of a breakdown on the numbers though, just to make sure that everything seems to be inline. I would like to know how you found a lender that would allow you to buy all of those properties at the same time!!
I don't know who the lender is yet, I'm working through a broker. However she said that this lender will allow up to 10 purchases at 100% LTV to a maximum of $1 million. Of course I still need to get through closing to make sure that her statement is correct. The loan is a 2/28 ARM that starts at 7% and is tied to the LIBOR. I have to pay 2 points for the loan.
What info do you need regarding the numbers? The numbers quoted are my pure income and known expenses without adding in any reserve for maintenance (although I did factor in a 5% vacancy).
Thanks for you reply and help!
P.S. I don't think retirement looks good yet - I just want to get to the point where I can do this full time - maybe 5 years!?
Would'nt mind divulging contact info on your broker would you sounds like someone I may be in need of in the very near future.
Thanks
ED
A 33% operating expense factor seems OK if you are managing the properties yourself. If you are planning to hire professional property management, then I would raise the operating expense to something closer to 45% of scheduled rental income.
Once you add in a maintenance reserve, a replacement reserve, get your own quotes for hazard and liability insurance, and allow for a property tax increase, you may find that your NOI is somewhere between $15K and $20K.
Remember that all "scheduled" rents (not just collected rents) prorated to your date of settlement become a seller credit on your side of the HUD-1. If you can settle on the 3rd of the month, then you should get a rent credit of about $8250 (lower if the units are not 100% occupied).
When you add in a credit for the security deposits (I am guessing about $9K if security deposit is equal to montly rent), you are seeing a seller credit of about $17000 to go along with the $23K seller assistance.
With nearly $31K from the seller (not counting the security deposits), I would hope that you could put more down and get a lower loan rate. With the LIBOR index at historic lows, perhaps you could lock a 5% rate with a downpayment.
Additionally, you want to confirm that the loans are amortized for 30 years, otherwise your annual debt service goes to $55K.
Nice points Dave. Closing date and confirmation of deposits are key. Don't overlook those 2 points.
Thanks for everyone's help. The comments and tips are very re-assuring!
Your expenses are exactly 35%. Make sure that you KNOW what the expenses will be for the property. Estimates are fine at first, but verify everything as you go into it.
Cap of 13.8%. That's a high cap rate. Is there a lot of defered maintance? bad area? That's high enough that I'd be suspicious.
Yearly CF is $31k or so.
Looks like a good deal, as long as you're not missing anything.