Board Topic: Financing for a 24-plex
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Financing for a 24-plex

Posted by: Jason S Oct 22 2003, 11:22 AM
My partner and I plan to build a 24-plex residential apartment building. We have already purchased the land and we currently own another smaller rental property.

We both have credit scores in the 700s and we have enough for a down payment of 10-15%. The banks want 25% down. Where do I go for such financing and how much more will this type of financing cost us? Here are the projected specifics:

Total project costs: $993,304
Total construction costs $888,000 (project costs minus the land)

Gross rents $158,000
Net rents $147,312 (w/7% vacancy)

Expenses $48,848 (utilities, maintenance, management, taxes, insurance)

Availiable for debt service $98464

As you can see, even with a 90% LTV we would maintain a good debt service ratio if we extended the term to a 20-30 year amortization.


Posted by: loanuniverse Oct 22 2003, 03:46 PM
Jason:

My partner and I plan to build a 24-plex residential apartment building. We have already purchased the land and we currently own another smaller rental property.
When I first see something like this, the first question that comes to mind is what is the experience of the borrowers in building and developing. If you are not building it, then who is your builder? What is his reputation?

Some time ago a “developer” came to an institution where I worked requesting financing for an 80 unit development, and provided the bank with a “construction activity resume”, that was a bit weak to begin with. Each of the properties that he developed was no bigger than four-units. In addition, once we did the math, we realized that he must have been 14 years old to have taken part in some of the deals he claimed to have worked on. Needless to say that this was a big negative when it came time to consider the application.

We both have credit scores in the 700s
Good

and we have enough for a down payment of 10-15%. The banks want 25% down.
This is not so good. Banks would stay away from this level of LTV.

Where do I go for such financing and how much more will this type of financing cost us?
How about taking on an equity partner? Besides that, I am at a loss at who would be willing to go that high.

Total construction costs $888,000
How did you get this figure? Is this your builder? Any of the two partners a general contractor?

Gross rents $158,000 -Net rents $147,312
How long will it take for the project to reach stabilization? The average rent per unit is $550, this seems low. Are we talking low income housing here? How about taking advantage of some local or state low income housing program? Renting this type of property might present more challenges.

As you can see, even with a 90% LTV we would maintain a good debt service ratio
The problem is that I do not know who would want to finance this at 90% LTV. You won’t get this from a bank. Check to see if HUD has some kind of program that can help.

P.S: Take into consideration that I am not a commercial real estate construction analyst. 95%+ of my real estate deals involve purchase or refinancing. I have seen the kind of schedules that the construction guys have to come up with and I want no part of that.

Good luck on your project, I hope this helps.

Posted by: Jason S Oct 22 2003, 09:27 PM
Hi Loanuniverse:

My partner and I plan to build a 24-plex residential apartment building. We have already purchased the land and we currently own another smaller rental property.
When I first see something like this, the first question that comes to mind is what is the experience of the borrowers in building and developing. If you are not building it, then who is your builder? What is his reputation?

My partner is a general contractor. He does not have experience in building multi-family but he has friends (other GC's) that have this experience. So, if lack of experience in building multi-family enters into the financing equation, we can run the transaction through one of his more experienced friends.


Where do I go for such financing and how much more will this type of financing cost us?
How about taking on an equity partner? Besides that, I am at a loss at who would be willing to go that high.

We were hoping not to have to take on another partner but this may be our only alternative. Are there mortgage brokers or other firms that specialize in multi-family financing that may go to this LTV? Or, do these folks have the same guidlines as banks?

Total construction costs $888,000
How did you get this figure? Is this your builder? Any of the two partners a general contractor?

Yes, my partner is a general contractor and this figure is based on sub-contract bids from our building plans.


Gross rents $158,000 -Net rents $147,312
How long will it take for the project to reach stabilization? The average rent per unit is $550, this seems low. Are we talking low income housing here? How about taking advantage of some local or state low income housing program? Renting this type of property might present more challenges.

It will take about 12 months. 9 months for construction and 3 months to fill...so we would first need a construction/bridge financing and then permenant loan financing.

Actually $550 in our area is mid to upper end of the rent scale. This is based on 902 square foot units at monthy rent of $.61/ square foot. We are located in northern Minnesota and while rents are lower than most cities, so are construction/ property costs. We are building this complex for under $42K per unit. Our market seems to be flooded with low income housing so we were going to stay away from it.

I appreciated your response and I will check with some commercial mortgage brokers for LTV before we consider taking on a partner. Thanks again. Jason.
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