Where to start in Rental Business |
| Posted by: Shailesh Jul 15 2004, 04:43 PM |
| Hi, I am new. I am looking at investing in income producing real estate options, for e.g. Rental Condos, Small Apartment Complexes or Small Motel. I am looking at this as long term investment, which can give some income every month and also appreciate in longer term. All together, I can pull out about $200K of cash for initial investment, and may be some more by adding partners. From what I read on this site, normally one can get upto 75% on loan, Is that true? What would be good way to learn about details like Financing etc.. ? Can someone recommend any particular book or site or training that will be helpful. I have previous business experience in running retail shops, which I think will help in management. Thanks in advance. Shailesh. |
| Posted by: loanuniverse Jul 15 2004, 06:28 PM |
| Shailesh: Welcome to the site. Let me address some of the issues you bring up. ”… Rental Condos, Small Apartment Complexes or Small Motel….” Good idea, but I would stay away from Motels. The management will take a lot of time, and a lot of lenders don’t like to lend on Motels. All together, I can pull out about $200K of cash for initial investment, … one can get upto 75% on loan, Is that true? ” That is a very good start, and yes 75% loan-to-value is pretty standard. You can leverage that down payment into $800,000 worth of properties. What would be good way to learn about details like Financing etc.. ? Can someone recommend any particular book or site or training that will be helpful..”Can’t recommend a particular book, but this is a good site to get your feet wet. There is some good information here and some pages that I am particularly proud of. Sure, some of the information here was not written with the outmost care, but it should be a start. It also has the benefit of being free. Make sure you read the disclaimer. I have previous business experience in running retail shops, which I think will help in management. That is good, but for residential rentals specially at this level, experience is not that important. Good luck |
| Posted by: Shailesh Jul 16 2004, 11:39 AM |
| Thank you very much for your reply & maintaining this site. Just few more questions. 1. What is generally accepted duration for Loan repayment? Can one get even 30 year loan? 2. What is the main criteria for Bank to approve loan? If I can prove that one can have positive cash flow, would that be enough? or they need past income statements from the seller in case of Apartment building? 3. What is the generally accepted interest rate for this loans? I read it is normally 2%+Prime rate, Is that true? 4. What is general estimate on short term & long term appreciation on Commercial residentia properties? As the prices have increase in last few years, I am guessing short term may be very small & long term may be little higher. Is that correct assessment? Some ball park numbers would be helpful. I am thinking in NJ area, where due to proximity to NY City, Rental demand is there, but prices are also high. Thanks in Advance. |
| Posted by: loanuniverse Jul 16 2004, 02:41 PM |
| Here are the answers: 1. What is generally accepted duration for Loan repayment? Can one get even 30 year loan? Yes you can, but chances are you will be offered a five year loan with a 20 or 25 year amortization. This means that there will be a balloon payment at the end of the fifth year. The thing about commercial real estate financing is that there is no established product that dominates the market the way that conventional 15-year or 30-year residential mortgages do on the residential side. It is a matter of what can be negotiated and the “aggressiveness” of the lender. I would personally shoot for a fixed rate loan for at least 15-years, but would be satisfied with a 10-year loan with a repricing at the end of the fifth year {this means that the interest rate changes, but that I don’t have to go look for another loan}. I would save my strength for the rate negotiation. The problem with a fully amortizing 15-year loan is that the debt service will be higher because the whole amount must be repaid in 15-years, but the rates are still pretty good. By the way, if you go for the 10-year loan with repricing, you want the amortization to be over 25 years not 20 years. 2. What is the main criteria for Bank to approve loan? If I can prove that one can have positive cash flow, would that be enough? or they need past income statements from the seller in case of Apartment building? For income producing property of the size that you are looking to buy. You only need to show that the cash flow is there. Past income statements from the seller are not necessary. But the lender is going to want to see: – An updated rent roll showing the tenants, the square footage that the tenant rents, the rent amount, the date that the tenant started renting & the date that their lease ends. – A breakdown of the operating expenses of the property. – A personal financial statement for yourself. – Three years of personal tax returns for yourself. 3. What is the generally accepted interest rate for this loans? I read it is normally 2%+Prime rate, Is that true? This is where you want to negotiate the most. I know that your plans are to keep the investment properties for a long time, but chances are that you are going to own them for less than ten years. It is also possible that you will refinance within that period . This means that the rate is very important. The rate is dependent on the type of structure. The longer the commitment from the lender, the higher the rate. For a 15-year fully amortizing, I would be happy with a 7% rate. For a 10-year loan with repricing after five years my goal would be 5.5% or Prime plus 1.25% using today’s rates. What is general estimate on short term & long term appreciation on Commercial residential properties? …….. I am thinking in NJ area, Well, if I could predict that from 2,000 miles away, I would be typing this answer from my Mediterranean villa. You asked for a ballpark figure so I am going to guess 3%. Really, I could not even predict what is going to happen in my own neighborhood with any degree of certainty. One thing I can tell you, the double digit value growth in recent times in some areas is unsustainable for long periods. Good luck. |
