Need To Form A JV
Is there a forum to join a JV or partner with a building I am looking to purchase? 36 unit apt. all are 2/1 and avg. rent going for $975 a month. Asking price is $5 million.
Most commercial lenders want 20% down. I need help raising this down money. Any ideas on how I can go about funding this deal with little or no cash out of pocket?
Newspaper ads the best way to go?
Well maybe you better find a deal that makes money first.
36 units at $975 gives me a rough guess of $285,000 as an annual net (and I think I was pretty generous on most of my assumptions). Which means you are buying on about a 6 cap. before you go finding a private investor you better figure out how you are going to cover the negative cash flow on this deal.
Annual Gross Rents = $421,200 (based on your numbers)
10% Vacancy Rate = 42,120
5% Reserves = 21,060
Advertising = 2,000
Property Mgt 5% = 21,060 (if so lucky)
NOI = 334,960
Annual Debt Service on $5,000,000 amortized @ 8.00% over 20 yrs
= 501,864
NOI of $334,960 / ADS of $501,864 = .67x
Negative cashflow of break even (33 basis points) or ($166,904).
BUT...Lenders are looking for 1.25x coverage so you would have to have an NOI of $627,330 to cash flow $501,864 in debt. Based on NOI above you are short by $292,370 per year on 100% financing. If you are looking for 20% down from an investor they are going to be looking for more than an 8% return.
Main point: You need to look at historical operations of a property and figure out a deal based on NOI; not gross rents. The percentages that I used above is as a rule of thumb but, may vary based on the property type, location, etc...
Good luck!
That seems like a big profit margin per house. What are your sq. ft. building costs?
Also, are you saying if we put up $150,000 we should be able to get back half of this relatively quickly by selling the house and a few acres?
i agree with commercialtalking...the streets, sewers, and electric will be a sizeable investment. If I could give you $150k and get back 1 million, I would fly down and write the check tomorrow...would like to see your numbers and then discuss further...
Are you still working this deal? I might be interested if it is still open.