Four apt. complex

duplex, villa, rendering-1026391.jpg
>trying to figure it out
Posted by: dave Sep 11 2003, 11:27 AM
I have recently found a four apt. complex that was renovated 3years ago and is located less than 1/2 mile from a university. 3 of the apts are 2 bedroom and rent for $500 and the other one is a 3 bedroom for $600. The 3 bedroom and 1 of the others are vacant as I am writing this. The asking price is $160000. The current landlord pays for water, sewage and garbage which are realatively low and the tennants pay electricity. I am very new to this, and would like the comfort that an LLC would offer but dont know if I could find the financing for this. What direction should I go? By the way I am a teacher at a school that send 30% of it graduating class to the university mentioned above so I could funnel tennants into the building. Also, Is it possible to get financing with no money down. Could this venture make a profit?
Posted by: loanuniverse Sep 12 2003, 03:27 PM
Hello Dave:

Here are my responses to your questions:

What direction should I go?
Your best bet would be to contact your local community bank and talk to either a Small Business lender or a Commercial lender. Depending on the size of the bank, they would have a team that will do everything commercial or have the work divided into a group dealing with small requests such as this one and another group that brings the multi-million dollar deals. The best way to find out is asking to speak to the branch manager or just by calling and telling the customer service person what you want to accomplish.

You should also know that you can buy multi-family residences with up to four units under a regular residential loan. This means that you would be occupying one of the units and renting out the other three. This would allow your personal income to be used as a partial source of your debt service coverage and make it easier to qualify for the loan.

Is it possible to get financing with no money down?
Possible it is, probable it is not. Banks hesitate at lending money with a high loan-to-value. This type of property is usually financed at no more than 75% ltv, which means that the maximum loan would be $120,000. You should also take into consideration that the value that the Bank will use is the lowest of appraised or sale value. Therefore, if the appraisal comes in at $155,000, then the maximum loan will be $116,250.

Having said that, there is a way to get financing with no money down, but you will have to convince the seller to do some partial financing. If the seller is willing to carry a second mortgage on the property for $40,000 then the Bank might be willing to finance the rest of the purchase price.

Could this venture make a profit?
Well I can tell you that right now the property is more than likely not making any money. The problem with small apartment buildings is that having a couple of units vacant throws the whole repayment out of whack. The current owner has only $1,000 in monthly rental income right now, and has to pay operating expenses and possibly interest on his own loan. Even if the building is paid for, there is such a thing as a return on investment.

In order to do an appropriate debt repayment schedule and figure out how much money will be left, you need to read the pages on my site that deal with this matter. I installed a search engine on the top bar that should be able to take you to the right spot.

P.S: Please remember that the amount that the seller wants and the terms under which he wants to sell you the property is only a startup point for negotiations. While some sellers might decide not to negotiate with you, it is always in your best interest to educate yourself about market conditions and make an offer that will benefit you the most. Some of the items that can be included in the offer are: A lower price, the request for seller financing in the form of a second mortgage and your offer being contingent on financing.

Hope this helps.
Author: Commercial Loan Underwriter