Trying To Break In
My wife and I want to get into landlording. We have looked into a management company that we really like and have found a building that is for sale. My biggest problem is that I am really unsure as to how to get financing.
We really like the building we have found, but it is a 5 unit building. I have found out that a "commercial" loan is required for anything over 4. When I look for terms on loans like this, they often have shorter terms and higher rates than the standard residential loans. The building is listed at $200,000 which seems very reasonable. Problem is, I can't afford 20% of that to get going. Is there another option? Can I use the fact that it currently has tenents with good history? How can we do this without a large amount of capital in our pocket? Anyone have any advice? :-?
A lot of lenders will allow 10% seller 2nd, if the seller is willing you lend you 10%. Of course, you still have to come up with another 10%. If you have 10%, have your agent negotiate with the seller to lend you another 10%.
Do you have US Bank in your area? I recently got a flyer that said they were having some specials on commercial loans.
What are the numbers on this deal ??
rent-
taxes-
insurance-
misc-
utilities-
what condition is it in ? My best advice is "in a perfect world real estate rentals are unbeatable" but we all know that is not the case. I urge you to be hungry and use caution at the same time.
One of the lenders on this site has a commercial package of 5% down, 20% second held by seller, and a 75% loan. Can you do the 5% down??
Quote:
On 2004-11-05 18:33, gobriango wrote:
What are the numbers on this deal ??
rent- $470 per unit
taxes- Unknown, but in a low tax area
insurance-Unknown
misc-Unknown
utilities-Unknown
what condition is it in ? I am told good, but have not had a chance to get up there to see it yet. The property is not exactly in my current area.
My best advice is "in a perfect world real estate rentals are unbeatable" but we all know that is not the case. I urge you to be hungry and use caution at the same time.
I will most definately be cautious. As I said, I am just starting to feel my way around in this business. I know there is a lot to learn, but am just trying to get some knowlege from the more experienced.
Quote:
On 2004-11-05 19:23, 64Ford wrote:
One of the lenders on this site has a commercial package of 5% down, 20% second held by seller, and a 75% loan. Can you do the 5% down??
Right now I could handle the 5% but not much more. I realize this may simply just be over my head at this time. I am just trying to figure out what is the best way to start. (A small apartment building like this or a house) The target that I am looking at is college students in this particular area. I'm sure you have some horror stories about young people, but being near a major college it seems like you would always have a good source of tenants.
I also am just starting out, but with a 6-plex. I had my agent write into the contract that it was subject to my finding a 90% commercial loan. It's taken some searching, but we have found a lender that looks like they're going to come through.
I could have looked for a 4-plex or lower so as to go with a residential loan, but I didn't want to tack on the PMI to the payment. It also seemed best to stick with a 5- or 6-plex because my insurance company 7 and above as an apartment building, and the rates were altogether different.
Since you're wanting to put down less than 20%, make sure you really crunch all the numbers including good projections for vacancies and expenses. If you don't have a real estate agent yet, find one that has had experience in landlording, so they can help you on those numbers.
Good luck!
Thanks for all the replies. I think my eyes may be bigger than my bank account on this one. I will probably just focus on buying houses to start out with. The terms are much more friendly for now.
Another item to consider: If you push your cash to handle the 20% down, are you going to be in a position to handle vacancies later on? I acquired a duplex that was rented by tenants who had been there for over 5 years. Within 3 months one of the tenants left and my cash flow is cut in half. Plus I have many repairs to make (another story). Always cover yourself for a higher then average vacency rate.
Maybe someone can crunch the numbers for us, but here's what I'm seeing.
5 Units @ $470 = $2350\mo
Multiply times 75% for vacancy and repairs = $1763 (assuming it is in good condition)
You put 5% down for a loan for $200k
$190k @ 7% = 1264.07 (30 year fixed)
Net Profit of approximately $6000\yr
That's 60% return of your invested amount in the first year.
You need to seriously look at making this deal happen. Don't give up until you are 100% sure that the deal won't go through.
FYI: These are just estimates according to online calculators and my own excel spreadsheets, if anyone has more accurate numbers feel free to chime in as these numbers are not definitive.
[addsig]
Quote:
5 Units @ $470 = $2350\mo
Multiply times 75% for vacancy and repairs = $1763 (assuming it is in good condition)
You put 5% down for a loan for $200k
$190k @ 7% = 1264.07 (30 year fixed)
Net Profit of approximately $6000\yr
That's 60% return of your invested amount in the first year.
Those were some of the numbers that I had originally come up with, but from what I saw, comercial loans usually want more than 5% down and are a much shorter term than 30 years. If this is not the case, then I am all over it. Right now, though, I am just too tight on cash to make it happen.