What Does This Mean?
Newbie here when it comes to large projects. I've been clicking around on TCI for fun. Here's what I've found, and I hope someone can elaborate for me.
Apartment complex in a nice area near me.
98% occupancy
56 units total
Scheduled Gross Income: $340,380
Laundry/Other: $12,500
Effective Gross Income: $335,861
Operating Expenses: $135,668
Net Operating Income: $200,193
Debt Service: $145,914
The asking price on this guy is $2,595,000. After is says the following which I don't understand too well.
Debt Type: Existing
Loan Amount: $1,860,000
Interest Rate: 5.00%
Amortized Over: 25
Due In: 10
Annual Debt Service: $130,480
Loan Description:
Assumable financing of approximately $1,860,000. 10 year balloon until 1/1/13.
So are they looking for someone to take over the existing loan subject to? Would it then be due in 10 years?
On a more general note, does this look like a good deal? How much money would one have to put down on a project of this scale? This is what I eventually want to work up to. Just curious.
The assumable mortgage is available if you want to make a deal for the current owner to take a second, or have enough cash to just pay him off. It is actually a good thing when they do this as it tells you the absolute minimum that the current owner can take for the property.
As far as a good price, as a quick look on TCI, I usually figure 10 times net and work my way down to get a good buy price. There are different scenarios, probably better, but thats where I start.
If he is 98% occupied then its definitely being run right, so you may want to pay more for a non problematic property with almost guaranteed returns. That is a decision you will have to make. Essentially what I got out of the ad is that they are looking for someone with a million bucks to put down on it, and take over. Persoanlly I would negotiate the price down and get the seller to take a second for most of that, until I refinance.
Good Luck,
Kyle
Kyle is right on.
"So are they looking for someone to take over the existing loan subject to? Would it then be due in 10 years? "
That's ONE option, and yes the loan that you would assume is due in 10 years, so you would either have to 1. sell it before then, 2. refinance, or 3. Negotiate with the current note holder for an extension or cheap refi.
I prefer to buy mismanaged properties. If I buy a property that's only producing 50% of the income that it could potentially, then I can in effect double the value just by managing it right and cleaning it up. To me it's the easiest way to build equity.
Where do people typically find this somewhat distressed or mismanaged properties? It certainly seems like the way to go.
Look for desperation. Look for the date of the ad, estate sales, expired MLS listings, properties that are being sold as is, or undervalued
Personally, I go to the realtors and tell them I am looking for properties I can buy at 60% or less of FMV. 9 times out of ten they come back with 70-80% of FMV properties, or a better deal than what they have listed. Which works as well. You will need to start networking with people to get the best deal.
Personally I like estate sales and the expired MLS listings as the desperation levels are high, and they are willing to blow it out a price I can live with. To accomplish this I have networked with Commercial realtors, lenders, estate attorneys, and Real estate attorneys. Most of the properties I look at either never were on the MLS or were expired (over a year).
In order of difficulty, are funding the deal, finding the deal, managing the property. That being said get the hardest out if the way first. Get with a lender and find out what percentage of FMV you can get loaned, then look for the deal that will fit into your budget. (IE 60% of FMV on X Type of property) From there tell your realtors, attorneys, and sellers that you are willing to buy it at XX% of FMV and any more than that they will have to fund, or reduce there price accordingly. If they cant or wont, then immediatley go to the next deal. The biggest mistakes I have made stemmed from not being able to walk away from any deal. lol it took me years to learn that simple technique.
Good Luck,
Kyle