Answers (12)
- Stephen Penrose, "stlrealestateguy"
- Contributions:45
It's a simple request for your agent to ask the seller's agent (or the seller) to produce the last 3 years income and expense statements. Any buyer that will finance the sale will need it because the appraiser will ask for it. The seller will have to produce it sometime and in my opinion the sellers failure or reluctance to share this necessary information indicates a red flag. If the income and expenses are supportable, the projected Net Operating Income NOI (not necessarily last years - or the average) divided by the "anticipated sale price" will give you an Overall CAP rate. For this type of property, I'd expect a CAP rate between .06 - .07 for a well maintained & stabilized property to .10 or much higher for a building with vacancies & deferred mainence issues. BTW, it is very rare to find income and expense data reported in the MLS and much of the time the expense data is woefully inadequate. But, that's my opinion.
- ELender
- Contributions:1479
You are buying the property for the income right?? That's what the lender looks at too! I can't say I know your market all that well but here in my neck of the woods I like to try to stay to $50,000-$75,000 per rental unit to make me happy about the numbers working. There are always variations given the size of the units, condition, income, etc. With purchasng a 6-unit it won't matter a whole lot to the lender if you are staying there or not, they would just consider your income going against that unit.
- Tracy Larkins, "To Be Announced"
- Contributions:649
- zandall
- Contributions:24
Thanks
- ELender
- Contributions:1479
There is no way that property is going to cash flow without a whole bunch down from you. Here is an example of what I mean with what you have provided:
At $500,000 you would at minimum (guessing for your market but normal for commercial lenders) be asked to put $50,000 down which might be your first problem. As Steve had said below they are going to be looking for debt service coverage. To elaborate they are going to figure your mortgage (probably some version to prime rate) and figure a couple of percent higher for rate adjustments. In this case you would end up $3000 to $3700 per month. At maximum rent this property only brings in $4350 per month. After they took away a management expense (normal even though you would do it yourself) and regular bills (water, sewer, trash, etc.) I doubt that this would even be close.
- zandall
- Contributions:24
Elender
Purchase price would be somewhere between 550 and 500. I want to put down as little as possible. Units rent between $715 and $725. Building is 77yrs old. I am not sure exaclty what all the expense are because I don't want to waste any agents time if I cannot get financing lined up. I would mange the building myself and I currently manage two other properties as well.
- Stephen Penrose, "stlrealestateguy"
- Contributions:45
- Steve Felty, "SteveFelty"
- Contributions:405
if you Google "DSCR", you should get a good deal of information to help you.
- ELender
- Contributions:1479
Six family is going to be the same thing. Some of the rental income would be included but not all of it at full occupancy. Each commercial lender has its own policy of how they will factor the income so I doubt you will find any kind of consensus. A lot of them have started putting clauses in there looking for landlord experience as well.
If you want to include some details maybe I can give you a better idea of what might be done. Purchase price? What are you wanting to put down? What are the units renting for? How old is the building? How about the expenses? Trash? Lawn Care? Water? Sewer? Pest Control? Are you planning on managing yourself?
- zandall
- Contributions:24
Thanks for the input. However I would like to know more of the specifics on the lending side. For example how are the rents sized up when applying for a commercial loan? When buying a 2, 3 or 4 family your rental income isnt recognized until after 2yrs by lenders. Is this the same process with commercial loans? Any help on the subject would be appreciated.
Thanks
- Steve Felty, "SteveFelty"
- Contributions:405
Let us know if you have any specific questions.
- ELender
- Contributions:1479
Six Family would be considered a commercial loan. Usually they want more down and the rates are higher.
What all goes into buying a 6 family? How does financing a 6 fam compair to a 2 or 4 fam?
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