I Just Got Back From Looking at a 4-unit I REALLY Wanted to Hate!

[bflbob]

The problem was...i couldn't.

Here's the deal:

4-units -- 2/2br, 2/studio
Rents -- $1,530/month total
Separate Utilities
Concrete Basement
Newer Roof


I factor in 8% vacancy, $50/unit/month R&M, 10% management.
I bumped up taxes (10%), insurance (33%), and common utilities (S&W) (45%).

I allowed for a $4,000 repair reserve.

I assume 10% down, 7.65%, 20 years.

Outcome:

10.02% Cap Rate
12.17% Cash-on-Cash Return
32% Total ROI
113% Debt Coverage Ratio

Best of all, the place looked solid.
No major problems were seen on the walk-through.

This is about 5 doors down from my 5-unit, which would make it easy to cover.

Oh...the cost. Seller is asking $65,000. (That's $16,250/unit).

Watcha' think?

 

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[RealOG]

Re: I Just Got Back From Looking at a 4-unit I REALLY Wanted to H

From a cashflow perspective it looks pretty solid, but would need to see what other similar places are selling for. If you are getting under market, grind em down a little bit more and take it. There is increased value to you if it is next to your other building.

 

[andviv]

Re: I Just Got Back From Looking at a 4-unit I REALLY Wanted to H

just to play it safe, could you lowball it a little bit so the DSCR goes to 1.3 instead of 1.13?

The numbers look interesting...

Why is the guy selling?

Are the units rented already? or you would have to lease it up completely? If full, what do you know about the leases?

 

[andviv]

Re: I Just Got Back From Looking at a 4-unit I REALLY Wanted to H

just to play it safe, could you lowball it a little bit so the DSCR goes to 1.3 instead of 1.13?

The numbers look interesting...

Why is the guy selling?

Are the units rented already? or you would have to lease it up completely? If full, what do you know about the leases?

 

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[bflbob]

Re: I Just Got Back From Looking at a 4-unit I REALLY Wanted to H

A quick update.

I heard from the bank today.

They will do 75% LTV. Quite a change from my last buy.

 

[Runum]

Re: I Just Got Back From Looking at a 4-unit I REALLY Wanted to H

Is that LTV based on appraised value or asking price?

 

[bflbob]

Re: I Just Got Back From Looking at a 4-unit I REALLY Wanted to H

Is that LTV based on appraised value or asking price?

Great question Greg.

All he mentioned in his email was that things had tightened up.
They were allowing 20 year terms, max 28% vacancy, and 75% LTV.

I'll get ahold of them again tomorrow to check.

 

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[bflbob]

Re: I Just Got Back From Looking at a 4-unit I REALLY Wanted to H

Make sure that your 8% vacancy rate is realistic. I know in this area (parts of Atlanta), vacancies are starting to rise, and I have a bunch of friends who probably own about 200 quad units between them, and have a combined vacancy of about 30% (we have monthly mastermind meetings, and this is the big topic of discussion recently).

Not saying it's the same in your area, but just wanted to note the fact that there may be a change in vacancy rates in some areas that are just starting to be felt...

Good point here.

I think that 8% is realistic right now, but I'm not sure what the future holds.

My place down the street probably has had vacancy of around 15%, but much of that was due to remodeling. We've had very little vacancy of rent-ready units.

 

[bflbob]

Re: I Just Got Back From Looking at a 4-unit I REALLY Wanted to H

just to play it safe, could you lowball it a little bit so the DSCR goes to 1.3 instead of 1.13?

The numbers look interesting...

Why is the guy selling?

Are the units rented already? or you would have to lease it up completely? If full, what do you know about the leases?

Andres:

Looks like that 75% LTV might bring that to 1.3 DSCR for me!

I'm not sure why the guy's selling. The young woman next door manages a couple of places on the street. She knows the owner and the tenants. She thought the tenants were fairly decent, although they looked scary to me -- sort of a skinhead appearance, more tattoos than teeth.

The units were all rented, and most were clean, but messy. Lots of stacks of clothing, etc. Some big dogs that I don't like, but they were caged in the apartments that had no one around.

I don't know what the leases look like yet.

To be honest, I was just looking through the place to find the hole in the roof. The deal looks way to good to be true. So, I wasn't even thinking DD. I was just looking for the smoking gun.

 

[JesseO]

Re: I Just Got Back From Looking at a 4-unit I REALLY Wanted to H

So far so good, Bob. Keep us in touch with what's going on with it. I for one am interested in seeing if there are any issues that the seller is hiding on this one!

 

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[bflbob]

Re: I Just Got Back From Looking at a 4-unit I REALLY Wanted to H

UPDATE:

I got ahold of the bank, and they are requiring the LOWER of 75% of appraised or selling. Go figure.

So, I put on my thinking cap (my RE Agent hates me!) to see if part of the 25% down can be seller financing. Every offer seems to involve some sort of creative financing. The banker said, "No. The policy of the bank in this market is that there is no second tier financing."

Then he asked me to stop by his office. I'm thinking that he wants to hit me up with more bad news, like they are putting a cap on my Lines-of-Credit, both of which are used to their max. (One will be freed up in about a month.) My son (a/k/a Partner) happened to be in town, so we both went for the visit.

We go over all the numbers. I'd guessed at the interest rate (7.65%), and it looks like I was a bit high. I'd used 20 years, but I can probably go 30 if I use a residential mortage instead of Commercial. I know this place is worth a good 20% more than the asking price, and he confirms that. But he's still stuck at 75% LTV.

So, he says, "What if I just increased your BOLOC by $30,000?"

Huh? What's a BOLOC???

"It's your Business Opportunity Line Of Credit."

So, although I can't borrow 95% at 7.5% interest, I can borrow 75% at 7.5% and another 43% at 5.5% "interest-only"! And the 43% isn't even secured by the property! I can't figure why the banks are in trouble!

I'm ending up with 152% in financing on the place (including 6% for closing costs) if all goes as planned. I'll know for "pretty sure" in about a week.

In the meantime, I'm putting an offer in for $60,000 plus 6% seller-paid closing costs. We'll see what bites.

 

[andviv]

Re: I Just Got Back From Looking at a 4-unit I REALLY Wanted to H

Is it April 1st?
There is no way that the conversation you describe happened... are they for real?
What is going on with this bank?

Anyway... congratulations, that is great news...

so I assume you are planning to move forward with it...

When do we get to see the pics?

 

[AroundTheWorld]

Re: I Just Got Back From Looking at a 4-unit I REALLY Wanted to H

Wow, that is some banker!

 

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[hatterasguy]

Re: I Just Got Back From Looking at a 4-unit I REALLY Wanted to H

Let me guess smallish local bank? They have the money to lend now, and know what they are lending on.

 

[bflbob]

Re: I Just Got Back From Looking at a 4-unit I REALLY Wanted to H

Let me guess smallish local bank? They have the money to lend now, and know what they are lending on.

Actually, it's a larger regional bank.

The company I'm Controller for has a $6mil line-of-credit with them, which probably helps.

Here's an interesting ditty about our local RE Market...

Today Show Video Player

(You may have to hit the F5 [Refresh] button if it won't load.)

Just to show that you can't always believe what you hear...

• IBM actually started in a town down the road from Binghamton (Endicott). To the best of my knowledge, there has never been any IBM building in Binghamton.
• If the mayor created 22,000 new jobs, he lost 33,000.
• A co-worker has a friend who does the local stats for the Dept of Labor. The mayor called him after this announcement to see if there was any way he could substantiate the 22,000 new jobs he spoke of.
• Binghamton University has been growing by leaps and bounds, but it, too, is not in Binghamton, but Vestal.
• Part of the reason prices are climbing is because they have stayed low through the recent boom. Hence, I can buy a 4-unit building in good condition for only $65,000.

Now I'm really starting to wonder who shot JFK!

 

[andviv]

Re: I Just Got Back From Looking at a 4-unit I REALLY Wanted to H

Now I'm really starting to wonder who shot JFK!

C'mon, everybody knows... it was the Realtors, Mortgage Brokers, Wall Street Honchos, Bernanke, Citibank, Paulson, Greenspan and Cramer.

Now, seriously, the trend is that prices keep going up in your area, so enjoy the ride and plan an exit strategy according to your understanding of the situation...

so, did you get an offer to the sellers already?

 

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[bflbob]

Re: I Just Got Back From Looking at a 4-unit I REALLY Wanted to H

so, did you get an offer to the sellers already?

I emailed the details to her yesterday afternoon.

The delay may be due to the fact that she is pregnant and due any minute.

In fact, I had more trouble getting her out of the basement of this place than Chris had with the furnace in his thread:

http://www.thefastlanetomillions.co...eal-estate-reality-vs-tv-shows.html#post67306

She does have a backup in place, just in case.

 

[bflbob]

Re: I Just Got Back From Looking at a 4-unit I REALLY Wanted to H

Hmmm...interesting new turn of events on this one...

When my banker was getting ready to extend our BOLOC, he noticed that my son was closing on his new construction property which we built through our LLC. We did this on a construction LOC.

He came to the realiztion that, when my son closes this week, we'll have plenty of line left to fund the new property. I said, "Yeah, but that's at 8.25% and the BOLOC is at 5.25%, so I was being cheap."

He came back and said that they both should be at Prime + 1%, or 5% right now. I said, "Good! So I have a big refund due?"

He just emailed me to confirm that the rate has now been dropped to Prime +1%, and that I have an adjustment due in my favor! I owe him a VERY nice dinner!

Then I jumped on the MLS to see if the status had chenged on the 4-unit I bid on. I now see that the duplex across the street has been listed. It was a "cat" house, taken back by the bank. The old mortgage was $74k+. They are asking $45k. The numbers work well at around $42k, net of closing costs.

I quickly emailed the banker who indicated that it would fit them fine, once the construction LOC is paid down after closing on my son's place.

So, with luck, I might own three properties, totaling 11 units, all on one street soon.

Now I have the urge to own a city block:coco:

 

[Yankees338]

Re: I Just Got Back From Looking at a 4-unit I REALLY Wanted to H

Hmmm...interesting new turn of events on this one...

When my banker was getting ready to extend our BOLOC, he noticed that my son was closing on his new construction property which we built through our LLC. We did this on a construction LOC.

He came to the realiztion that, when my son closes this week, we'll have plenty of line left to fund the new property. I said, "Yeah, but that's at 8.25% and the BOLOC is at 5.25%, so I was being cheap."

He came back and said that they both should be at Prime + 1%, or 5% right now. I said, "Good! So I have a big refund due?"

He just emailed me to confirm that the rate has now been dropped to Prime +1%, and that I have an adjustment due in my favor! I owe him a VERY nice dinner!

Then I jumped on the MLS to see if the status had chenged on the 4-unit I bid on. I now see that the duplex across the street has been listed. It was a "cat" house, taken back by the bank. The old mortgage was $74k+. They are asking $45k. The numbers work well at around $42k, net of closing costs.

I quickly emailed the banker who indicated that it would fit them fine, once the construction LOC is paid down after closing on my son's place.

So, with luck, I might own three properties, totaling 11 units, all on one street soon.

Now I have the urge to own a city block:coco:

No plans to trade those houses up for a hotel on your monopoly? :eusa_clap:

Good luck! Sounds like a great deal.

 

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[bflbob]

Re: I Just Got Back From Looking at a 4-unit I REALLY Wanted to H

I put the initial offer in on Friday.

It was accepted today (Tuesday), with only minor changes on what is in the house.

$60,000 plus 6% in closing costs.

Now...for the duplex.


:smx6::smx6::smx6::smx6::smx6::smx6::smx6::smx6::smx6::smx6:

By the way, my realtor was pregnant, as I mentioned earlier.
She had the baby on Saturday morning, and is prepared to meet with me tomorrow.
Isn't working on commission a great motivator??

 

[andviv]

Re: I Just Got Back From Looking at a 4-unit I REALLY Wanted to H

funny, suddenly FMLA does not matter anymore when you work for yourself and by commission, huh?

Congrats on on the 4-plex, and good luck with the duplex.

When do we get to see pics?

 

[bflbob]

Re: I Just Got Back From Looking at a 4-unit I REALLY Wanted to H

He came back and said that they both should be at Prime + 1%, or 5% right now. I said, "Good! So I have a big refund due?"

He just emailed me to confirm that the rate has now been dropped to Prime +1%, and that I have an adjustment due in my favor! I owe him a VERY nice dinner!

I just looked online, and my interest is down to 4% on this.

Maybe two dinners???

 

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[bflbob]

Re: I Just Got Back From Looking at a 4-unit I REALLY Wanted to H

Things just keep getting better on this.

I'm waiting for the sky to fall.

A refund for my interest was just posted to my account (about 1/2 of what I'd paid for the year).

And, my realtor just emailed me to let me know the asking price on the duplex has dropped from $45,000 to $30,500. It was sold in 2005 for $71k, and this area never saw the big appreciation other areas did, so this is probably still a good price.

I think there must be a body somewhere in the house.

I'll know by tomorrow.

 

[bflbob]

Re: I Just Got Back From Looking at a 4-unit I REALLY Wanted to H

After getting what is called an Addendum F in our area (list of tenants, rents, leases, security deposits, etc.), I found something I didn't like.

Almost every tenant in this place has a BIG dog, and nobody has paid a security deposit.

I'm going back to the seller to request a price reduction to offset what I would have expected for security on the place. We'll see how I make out.

 

[SteveO]

Re: I Just Got Back From Looking at a 4-unit I REALLY Wanted to H

I don't know your opinion on the big dogs. I don't mind them as long as they are not aggressive and the residents take care of them. But there should be a deposit and a non-refundable pet deposit if your state allows for it.

Certain breeds not allowed, of course.

 

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[bflbob]

Re: I Just Got Back From Looking at a 4-unit I REALLY Wanted to H

I don't know your opinion on the big dogs. I don't mind them as long as they are not aggressive and the residents take care of them. But there should be a deposit and a non-refundable pet deposit if your state allows for it.

Certain breeds not allowed, of course.

Great Dane, Pit Bull, Mongrel.

I usually charge a $100 non-refundable cleaning fee in addition to my regular security deposit.

Additionally, I add $15/month to the rent per pet.

I limit it to dogs that can be expected to stay under 20 pounds at adulthood.

And, I have a special Pet Agreement that handles barking, waste, etc.

I'm sort of stuck with these tenants, and don't want empty apartments until spring, so I'll live with it.

For what it's worth, the dogs were caged when we went into the apartments, and there was no sign of damage or smells.

 

[hatterasguy]

Re: I Just Got Back From Looking at a 4-unit I REALLY Wanted to H

I still can't beleive this place is so cheap. How much is it worth as a lot?

You couldn't build a new one for this price, its way below cost.

 

[bflbob]

Re: I Just Got Back From Looking at a 4-unit I REALLY Wanted to H

I still can't beleive this place is so cheap. How much is it worth as a lot?

You couldn't build a new one for this price, its way below cost.

True. When I bought my 5-unit (a few doors from this one), I paid less than $100k. It is over 4,000 square feet, so when I went to insure it, they set the replacement value at over $400k.

Both the 4-unit and the duplex I'm making offers on are over 2,700 square feet, so when it's all done, I'll have about a million in replacement value property that I bought for under $200k.

Hmmmm...match anyone?:burn:

 

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[Bilgefisher]

Re: I Just Got Back From Looking at a 4-unit I REALLY Wanted to H

I don't know your opinion on the big dogs. I don't mind them as long as they are not aggressive and the residents take care of them. But there should be a deposit and a non-refundable pet deposit if your state allows for it.

Certain breeds not allowed, of course.

Some local areas restrict breeds as well. Any dog that resembles a pit bull, rottweiler or other dog on the local list is put down. Aurora put down 1200 dogs for this reason last year alone.

 

[hatterasguy]

Re: I Just Got Back From Looking at a 4-unit I REALLY Wanted to H

Maybe you will get lucky and they will burn to the ground! Kinda hoping the used house I am trying to sell does that, than I will have a REALLY good deal!

Rent to smokers. :Welcome: