Looking For Opinions On 40 Unit Deal (Go Or No Go)
I would greatly appreciate anyone that could take a minute to offer their opinion on this deal.
40 unit townhouse complex (all 2/2)
Federally subsidized housing (90% of rent)
100% occupied
Respectable neighborhood near hospital/parks
Good condition (5 year old roofs)
The numbers:
Asking price $1,375,000
Appraisal $1,288,000
Will accept $1,175,000
Rent 251,040
Vacancy (7,500)
Laundry/other 6,000
Total Income 249,540
Expenses:
Maintenance 25,000
Management 12,000
Lawn 6,000
Accounting 3,500
Common utilities 3,000
Utilities 51,000
Reserves 10,000
Taxes 12,375
Insurance 14,650
Total 137,525
NOI 112,015
Debt Service on 80% 74,672
Annual Net 37,343
Return on 20% down payment 14.64%
Financing deal:
6.94% 30 year fixed
15,000 fees and appraisal
Stiff/long term pre-payment penalties
Thanks for you help!
I wanted to go with a large internet lender so that I could get a longer term fixed rate. (my usual locals only go fixed to 10 - 15 years) I will try your suggestion but I do not think they will be very negotiable. The 2 pre-payment options are 15, 14, 13, 12, 11 down to 1 and 10, 9, 8, down to one with a slightly higher rate. Both seem like too much to me.
The renters are like S8 only the complex is under a five year contract directly with HUD. The current rent roll shows HUD paying an average of about 90%.
Assuming the lender is non-negotiable what do you think of the numbers?
I really appreciate your response and idea concerning the financing.
Thanks!
The loan terms are now non-recourse. If the current rate at the time of sale is higher then I owe 1% if it is lower then I owe the yield difference.
Thanks for your assistance!
Does anyone have a comment on the numbers?
Thanks!
Three percent vacancy allowance seems rather optimistic. What is it based on? A minimum of 8% seems to be the standard calculation.
Chris
You should definitely shop the loan more. Find a contact with Citibank (Their multifamily loans are great right now.) and numerous commercial loan brokers. Just send them your numbers and ask for their best proposal. You might be surprised. 6.94 seems high for the loan amount. Then again it is a 20% down 30 fixed loan. If you can meet a 1.15-1.20 DSCR, then you should be able to do a little better. Maybe 6.3-6.6ish, but just shop it to see.
Most loans that we have been offered the past 2 weeks have been 10 year fixed amortized over 30 years, with a step down prepay, fully assumable. Rates from 6.25 - 6.80. And that was for a smaller loan size than yours. (Loans over $1 mil tend to be more competitive)
Otherwise the return is fantastic, Go for it! Where is it located, AL?
Thanks for you comments.
I guess I could look a little harder but I want a long term 25 - 30 year fixed rate. The lenders that I normally use only offer 10 - 15.
Thanks again!
Eddie
Thanks Pipre
After I read your post I went back and revisited my spreadsheet.
The way I looked at it was: The return on my 235,000 down payment plus 20,000 closing cost (I bumped it up) is 37,000 or 14.5%ish.
Since my original post the owner has accepted 1,175,000 and I will start inspecting all of the units this week.
HUD pays x amount of dollars on each unit some more than 523.00 and some less, If it is less then I collect from tenant if it is more then it I keep it (apply toward the utilities) The current rent role shows them paying 80 to 90% for most of the tenants and a total of 3,000 over on the rest,
The utilities that I pay for are gas heat, water and sewer. I have not investigated the metering yet, There are at least a couple of years left on the HUD contract so I could not change anything right now even if I wanted to.
I normally stay away from paying utilities but this seemed like a deal that I did not want to pass on. I am requesting the owner to provide back up for his stated utility costs just to make sure that 51,000 is a real number.
Thank you for your post and any further comments!
Eddie
Averaging $100 a month per unit for utilities would be unrealistic here in Michigan- but it is a lot colder...
Chris
I agree. Electricity for cooling is the big item here. I am woking toward seeing the documented actual cost.
Thanks
Wow, sounds like an incredible deal...Unless this is next to a nuclear waste dump, you should have criminal theft charges for stealing this guys property.
If you you put $200k down, you should cash flow like crazy after the rehab. If these are 2bd/1bth, thats even better. If this place is even 60% occupied, I bet you would break even each month with a 400k mortgage.
Just make sure you can rent the place, find out the reasons that this guy cant rent the place out, before you close.
Good luck. I dont understand your question, seems like you have the dp; either way, you should be able to get financing with 20% down.
Thanks again all. The units are 2bd/1bth and the rents are approx $375. The asking price is $670k with an assumable $647k. There are 13 of 36 units vacant and the area rents well but the owner left these vacant to do updates. My question is do i need to show 20% to the bank to assume the mtg? The $23k bal will be carried by seller with no dp. What can i do?
I have never heard of making a down payment to assume a loan! Sometimes there is an assumption fee, and the bank generally will have the right to review your credit and etc. before approving the assumption.
Current income of $8625 a month should leave you with $4000 a month to cover principal paydown, utilities, management, upkeep, taxes, and etc. assuming 8.5% interest. Check the numbers and make sure it adds up, but even with the high vacancy this looks like it is a happening deal. Rent out those 13 units and you will get another $5k a month of gravy on top!
My advice, as if you need it- jump on this!
Chris
As well as being mortgage fraud, showing the sale as $900k "on paper" would create a huge tax liability for the seller, as his profit would appear as $274k instead of the $24k you say he is actually profiting...
Chris
I would set up a time for both you and the seller to either call the bank via a conference call or for the both of you to meet at the bank to discuss the assumable mortgage. It looks as though the Seller may not be thinking the same as you and the best way to resolve the issue is to meet with all parties at once face to face.
Good Luck!
Thanks I am in the process of trying to set that up.
Austin:
If by chance you come back to the site; could you provide us with an update as to what happened with your potential purchase?
I am just curious as to what happened as the result of the seller and his fancy financing.
Guess the deal went belly up.
last I look World Saving had a friendly program, but that was pre-crisis,
Yield spread premiums are standard in the industry. What you want to concentrate on is whether you think you are getting good rate and terms (fixed, variable, baloon, repayment period, prepayment penalty, etc) and how much you are paying at closing (even if they are adding it to your loan - you are still paying it). When comparing, I ask my broker for his rate with no nonrecurring closing costs and NOTHING added on to the loan. That way I can see how much it is really costing me to get a loan without nonrecurring closing costs. I have done my last three loans that way - no closing costs and been very happy. No, I am not a relator or mortgage broker.
Be careful not to get too caught up with what the Broker is making. The only thing that really matters is the rate, term, and fees you pay.
You may be dealing with a broker who knows the "Perfect" bank/lender to place your loan with, and therefore can get you a rate of 1% less than everyone else for the exact same fees and loan terms. In this case, does it really matter that he "Could" lower the rate another .25% and loose the Yield Spread?
When you sell one of your investments, you always "Could" sell for less and make less money, but still make a profit right? But you try to make as much as possible, and remain competitive in your marketplace right?
If you want some unbelievable commercial financing, give me a call. I always shoot straight.[ Edited by CashMoneyMan on Date 09/28/2007 ]
edmelly03,
Did you get my response to your Private Message?