8/29/2010 7:47:28 PM
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.