To all investors. Is it wise to buy 4-plex with cash at a discount then pull money back out down the road or bank loan from the begining?

All cash deals are becoming more common with credit tightening up. However, interest rates are very good right now. If you do buy in cash right now, don't expect to get all of you equity out of the deal in the near future. One of the partnerships that I'm in purchased a 72 unit MF complex at about 1.1 million and put another 500K into rehab. At time of purchase and condition of the property, we decided that the bank was not going to provide us the leverage we needed and was able to negotiate better pricing by paying in cash and closing quickly. It had previously sold a couple years ago at 2.6 million. After adding capital improvements via the rehab, increasing the rents, adding amenities such as a playground, added security, kicking out the riff raff, increasing occupancy, and lowering operation costs..... Bottom line, an increased NOI that would comfortably bring its previously sold price of 2.6 million. You would think that we would be able to get all of our equity out on a refinance. WRONG. We are seeing 70-80% of LTC (Loan to Cost) which would be the 1.1 million. No problem, we'll just enjoy the cash flow until credit loosens. Just want to point this out in case you decide to do it as an all cash deal. As a 4-Plex can qualify as residential, you should have access to better leveraged financing than the commercial loan market. I would get with a mortgage broker in your area well versed in working with investors. Have this mortgage broker provide you with a couple of GFEs (Good Faith Estimates) for some of the loan products that you and the property type would qualify for. Then compare to decide if the leverage provides good enough terms (interest rate, amortization, years due in, down payment, and junk fees) vs. paying in cash. If financing, make sure that you get it as a fixed interest rate and know when the note is due. Also, certainly don't buy it based on how much equity you may think is in the deal as you will likely see property values decrease even more with commercial properties that will likely take down the price of duplexes-4plexes as well. Instead, make sure the rents will comfortably be able to pay off PITI, vacancy and other operating expenses with extra cash flow. Best wishes!

ccie That was very educational thanx for the advice! hear me out. Im about to give offer on 4-plex for 100,000 cash... rents are 600x4units=2400monthly=28,800 yearly less all expenses taxes,management, insurance and so on gives me about 20,000$ yearly thats 20% CASH ON CASH. So if you say LTC is about 70-80% should be able to pull out about 70,000 to invest in new project and still profit about 30+% from 4-plex???? like ur thoughts please reply,,,

Sounds like a good deal as the numbers will provide good cash flow even if 100% financed. With skin in the game, it will cash flow even more. If you end up coming out of pocket for rehab/make ready, the LTC is on the sales price, not sales price and after costs. I would also factor in about 5-6% for closing costs (about 2% for the cash deal and about 2-3% for the refi). With that in mind, it would be more like being able to pull out 60-70%. However, I'm basing this off of commercial type financing. With some digging around, I think that you could get better leverage and terms with a residential non-owner occupied loan. Hope you get the deal and would be curious to know down the road how you make out on the refi.

CCIE THANX FOR REPLY AND WILL LET YA KNOW IF IT HAPPENS! (AS WE SPEEK WE ARE IN THE NEGOTIATION STAGE)

Hi rickson so ur saying if you have the the money buy with cash at very discounted deals? would 15-20% cash on cash be considered good or could be better! ???