Morning folks! I just put a contract on a group of rental properties and I'm looking for issues.

Details of contract : 8 neighboring properties for $349k. Obviously, these are not big houses, but they are all currently rented and have been run by the owner for the last 60 years. Current, the monthly rent income on the group is 5.2k.

With 20% down, I'm looking at a loan of $314,920 and with interest, prop tax, PM on a 30year I'm getting around 1.5k.

This looks fantastic to me, but I'm looking for help picking it apart for possible deal breakers. I've got a 15 day option period starting now!

Thanks in advance.

Unless someone has a better option you need a traditional bank to make one loan. I would have to do 8 stand alone loans and my lenders would not loan on a package.

Do you have a personal banker?

Thanks Steve. I closed on a house last Friday and am checking with them now. I would definitely prefer one loan. Working on a pre-approval for the seller now.

My hope is the same lender will become my personal Banker. We'll see. Thanks for the feedback

Commercial loans, which this would be, typically have worse terms then conventional loans. The rate MIGHT be similar but will likely have shorter amortizations and be adjustable instead of fixed. Does not mean it will be a bad deal, just different.

take a really hard look at future capital expenditures and maintenance on homes of that age and quality. And find a good property manager. 9-10% of gross income.

Thanks treetop. Is 9-10% a rule of thumb as to what expenditures are going to cost per year?

7-10% of rents for property management = $5,000 per year
50-100% of 1 month's rent for leasing = $4,000 per year
2-3% of value for property tax yearly = $8,000 per year
1-2% of value yearly for maintenance = $4,000 per year
3-5% yearly vacancy = $2,500
.5% insurance = $1,600


Overall I would estimate you have about $62,400 gross yearly revenue, $25,100 in expenses or reserves making $37,300 in profit prior to P&I payments. As long as your payment is less than $3,300 a month you should be cash flow positive. This does not figure in any tax advantages.

I own class b/c units in Texas. In my experience you're looking at 45-50% of your gross income to service debt. That's fully baked meaning capital reserves, maintenance, vacancy, taxes, make ready, insurance and occasional eviction. Say 30k of cash flow before debt service. They're more costly to operate than you think.

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Morning folks! I just put a contract on a group of rental properties and I'm looking for issues.

Details of contract : 8 neighboring properties for $349k. Obviously, these are not big houses, but they are all currently rented and have been run by the owner for the last 60 years. Current, the monthly rent income on the group is 5.2k.

With 20% down, I'm looking at a loan of $314,920 and with interest, prop tax, PM on a 30year I'm getting around 1.5k.

This looks fantastic to me, but I'm looking for help picking it apart for possible deal breakers. I've got a 15 day option period starting now!

Thanks in advance.

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Also, just a quick observation. You said contract price was $349K...and with 20% down, your looking at a loan of $314.9K. By my math 349,000 X 20% = 69,800 ...... ($349,000 contract - $69,800 down = Loan Amount of $279,200). Did you run your cash flow assessment with the assumed loan value of 314K?

Be careful about one loan across all properties. It can be difficult if you need to sell one property. Need to make sure there are partial release clauses in the loan docs if you get one loan to cover all properties.

Commercial loans from small local banks are the only way to go if you want to build a decent sized portfolio. Terms are actually pretty good. I am getting 20 year fully amortized loans with adjustments every 5 years with .5 point origination with the starting interest rate around 4.6%. That's about the most favorable commercial loan terms I have ever seen.

I did something very similar a years ago. 6 properties. Your numbers looked better than mine initially but mine was in a hot market and I would kill for your numbers.

I crunched my numbers (put 30% down) and I projected a cash flow of 3-40K a year across all properties assuming everything went perfectly (No major repairs which I was expecting). After the 1st year, I believe I had to put in about 10K which I fully expected b/c I put in 40+K in renovations.

I was able to raise rent 20% on avg this year and will Cash flow plus my property value has gone up 20% which was the reason I went into this knowing I likely would not cash flow in the first 2-3 yrs.

Overall your numbers look good, but realize that you may be spending most of it to renovate the place when tenants leave, big repairs will come (HVAC, Roof) and will need to be fixed. Get a home warranty on these places for the 1st year and maybe beyond.

I hope your market will allow you to raise rent because your carrying costs today will less than in the nexts few years (property tax tend to rise).

Concerning your loan options, I looked at Local banks that would do one portfoio loan vs going to a mortgage company that can access Sallie Mae for the best rates but you will have to do individual loans for each place.

At the end of the day, I would recommend going to a Mortgage broker who can deal with all of the headache.
1. Going through Sallie Mae gives you a better rate, better terms than a local bank portfolio loan which comes with higher rates and usually with arms/shorter terms.
2. You can have only 10 total properties via Sallie Mae. After that, you will need to go through a smaller bank/portfolio loans which is most costly
3. Having individual loans allows you more flexibility when selling them individually.
4. Many national companies (Such as Quicken) will only allow up to 4 loans at a time. That is why going through a broker was easier and I ended up with two national companies. They helped coordinate having everything close at one time and I had to only deal with one person and not two different companies
5. Investment properties tend to have atlittle higher rates and require a larger down payment (30% in my case for the best rate.)

Alot to think about, but I like your properties if the value has going up. If it is in a place where value has not or will not go up, I would avoid it.

Your numbers are AWESOME! Individual loans on each property would certainly cost more than one loan. You should check out commercial lending for one loan. Randolph Brooks Federal Credit Union or Austin TELCO might be good choices to checkout. Good luck! Hopefully you have some landlord experience. Even if you use a property manager, you will have the experience to know if the PM is doing a good job. It is HARD to find a good PM.