Seller Financing
I have a deal that I am seriously considering. Its a 10 unit located in the inner city of Detroit. Asking price is $200k, 80% occupancy, gross rents are $40,800, NOI is $20,362, cap 10%. The maximum that I can get with conventional financing is 75% - 80% LTV.
My question is how do you structure an offer to request that the Seller take a 2nd mortgage of $40k - $50k? What interest rate should I offer? What amortization schedule would be reasonable? 10yrs,?15yrs? etc. Better yet is this a good deal or not?
Okay, is this asking based upon full accompancy or have credits been offered in consideration of owner 20% vacancy rate? If not, calculate the dollar amount lossed and let that be your starting point in making an offer ... for starters.
In addition, find out why the vacancies are so high, is it do to poor managment or are upgrades needed to the vacant units or other? As a rule I like the GOI to represent @ least 10% of the asking price, however, there is no such thing as good deal in a dying area!
In addition, do you know when were all major upgrades last completed to this structure? If not, find out ... the prelims look acceptable but the variables that are not mentioned leaves me unable to commit to the validity of this deal @ present.
Thank you, your feedback has been very helpful. Of the 10 units only 2 are vacant (thus the 20%). The most recent upgrades are the furance, new plumbing & electrical. The needed improvements would be for the windows and some units need new carpeting. The rents are only $425, which seems rather low for a 2br, but then again its in a low income area. The GOI @ 100% is $4250 per month ($51,000) well above the 10% rule of thumb you mentioned. As I said earlier, even as it is right now @ 80% ($40,800) it exceeds that benchmark. What do you think? Are there any other questions I need to ask at this point? [ Edited by glsmith on Date 03/25/2006 ]
Just out of curiosity, why should I offer to pay $38,000 more for the property than the $200,000 they are asking for? Maybe this is a dumb question, but is there anyway that I could buy this property with no money down? You know, "gain control" of it, refinnce to cash out the seller and use the rents to pay for it all?
To gain control of the property, ask the seller to lease to own it to you.
Thanks to both of you! If I can get CLTV @ 95% and use the escrow of security deposits and rents I could recoup my 5% and cover my closing cost & appraisal fees. Right? or am I too "creative" here?
Correct, however, be mindful of the laws in your state which govern the use of such monies. In any event, those deposits will have to be returned to the seller when they move out. So close on the first or somewhere just before and good luck to you on your investing!