multi-unit purchase?

[zapper7177]

How can I purchase a multi-unit property with no money down on my end. Would a VTB of 25% allow me to qualify with the bank for the last 75%? Can I use the 25% VTB as my down payment? I also know of an apartment complex which is owned by the courts and was wondering how this works and can someone get it for a steep discount. The area I invest in has high rental rates but is directly tied into the oilfield which is slow now but is set to grow again in the new year. Any ideas would be greatly apppreciated. Thanks

 

[housingrental]

The short answer is you can`t.

The longer answer is partner with someone who has funds to facilitate.

 

[Rickson9]

QUOTE (housingrental @ Dec 24 2009, 04:27 PM) The short answer is you can`t.

The longer answer is partner with someone who has funds to facilitate.

I like it. Very to the point.

 

[zapper7177]

So any vtb cannot be recognized as a down payment? What would be the minimum down for a multi unit property?

thanks for your continued comments

 

[gwasser]

QUOTE (zapper7177 @ Dec 25 2009, 12:32 PM) So any vtb cannot be recognized as a down payment? What would be the minimum down for a multi unit property?

thanks for your continued comments

35 to 40%

 

[Nir]

QUOTE (gwasser @ Dec 25 2009, 02:31 PM) 35 to 40%


wrong. usually 10-15% minimum with a good VTB though.

 

[Thomas Beyer]

QUOTE (zapper7177 @ Dec 23 2009, 06:02 PM) How can I purchase a multi-unit property with no money down on my end. ..
you can`t .. unless you have OTHER people give you money for a joint venture ... then you take a % of profit .. maybe some fees ..

 

[Thomas Beyer]

QUOTE (investmart @ Dec 25 2009, 03:48 PM) wrong. usually 10-15% minimum with a good VTB though.
15% is usually NOT possible anymore .. and not in W-Canada certainly .. unless:
a) crappy town
b) crappy asset with huge deferred maintenance
c) highly motivated vendor who finances property

no bank will lend you a 1st mortgage with a VTB exceeding 85% !!

10% down exists in theory, in small towns, with motivated vendors who lend you 90%, and with assets that require HUGE cash after closing

 

[Nir]

QUOTE (ThomasBeyer @ Dec 25 2009, 05:40 PM) no bank will lend you a 1st mortgage with a VTB exceeding 85% !!
this does not contradict 15% down. let`s use semantics.

 

[zapper7177]

Thanks for your input guys and it is nice to hear your input on this topic. This property is in a small town and it consists of 3 buildings with half the units in this portfolio. The three buildings are in 3 different states of repair so it might need cash to repair.
I"m thinking a VTB only helps for qualifying with the banks.
Thanks again and merry christmas to all

 

[Thomas Beyer]

QUOTE (zapper7177 @ Dec 25 2009, 10:44 PM) Thanks for your input guys and it is nice to hear your input on this topic. This property is in a small town and it consists of 3 buildings with half the units in this portfolio. The three buildings are in 3 different states of repair so it might need cash to repair.
I"m thinking a VTB only helps for qualifying with the banks.
Thanks again and merry christmas to all
send as is rents to a commercial mortgage broker .. and depending on those rents, property condition, CMHC`s view of vacancies and CAP rate they`ll lend between 40% and 85% LTV .. and maybe hold back $s for required repairs !

 

[housingrental]

Hi Zapper
Unless I`m misunderstanding you seem to be sitting your self up for big trouble with a reno project on apartment buildings when you don`t even have enough cash to purchase the properties... you should have big $$$$ for something like this to add value to property through work.. but also to be able to hold on if things dont go well... repairs that should be done become repairs that need to be done... $100K repair becomes $200K repair.... building goes half vacant... etc..

QUOTE (zapper7177 @ Dec 26 2009, 12:44 AM) Thanks for your input guys and it is nice to hear your input on this topic. This property is in a small town and it consists of 3 buildings with half the units in this portfolio. The three buildings are in 3 different states of repair so it might need cash to repair.
I"m thinking a VTB only helps for qualifying with the banks.
Thanks again and merry christmas to all

 

[smalltown]

15% is usually NOT possible anymore .. and not in W-Canada certainly .. unless:
a) crappy town
b) crappy asset with huge deferred maintenance
c) highly motivated vendor who finances property


I just bought a power of sale four unit with 10% down in May, 2009.

Got it for a steal; it is MPAC assessed at 50k more than I paid.

It also net cash flows at 1k per month.

The town is not crappy, yes the building had small deferred maintenance issues which we fixed ourselves, I found the bank (that owned it) was not motivated at all to sell, I found it extremely difficult to deal with and we almost walked, but I was salivating at the cash flow!

 

[housingrental]

Thank you Rickson9... looks like we agree on something!
QUOTE (Rickson9 @ Dec 24 2009, 05:02 PM) I like it. Very to the point.

 

[housingrental]

Hi smalltown
What town was this?

What was the purchase price?

How much in reno $$$ would have been needed including materials and labour if you had hired professional trades to do it?

Noting that your name is smalltown... I`m sure Thomas (and lenders generally) would consider a small town in the same category as his crappy town category..... so your were likely able to do this only because it wasn`t in a larger populated area... ie much higher cap rates are market value in small town... so you likely picked something up at a 9% cap instead of 6%....

QUOTE (smalltown @ Dec 26 2009, 05:01 PM) 15% is usually NOT possible anymore .. and not in W-Canada certainly .. unless:
a) crappy town
b) crappy asset with huge deferred maintenance
c) highly motivated vendor who finances property


I just bought a power of sale four unit with 10% down in May, 2009.

Got it for a steal; it is MPAC assessed at 50k more than I paid.

It also net cash flows at 1k per month.

The town is not crappy, yes the building had small deferred maintenance issues which we fixed ourselves, I found the bank (that owned it) was not motivated at all to sell, I found it extremely difficult to deal with and we almost walked, but I was salivating at the cash flow!

 

[smalltown]

QUOTE (housingrental @ Dec 26 2009, 05:27 PM) Hi smalltown
What town was this?

What was the purchase price?

How much in reno $$$ would have been needed including materials and labour if you had hired professional trades to do it?

Noting that your name is smalltown... I`m sure Thomas (and lenders generally) would consider a small town in the same category as his crappy town category..... so your were likely able to do this only because it wasn`t in a larger populated area... ie much higher cap rates are market value in small town... so you likely picked something up at a 9% cap instead of 6%....

It is one hour from Ottawa and one hour from Montreal and 15 minutes from the next big city (pop 50k) so many commuters live in the town and just because it is small, doesn`t mean it`s crappy

The expensive repairs were complete upgrades (adding value to the property), windows and new flooring. Repairs cost us 8k, and if we hired someone to do them add another 1k. All other major systems are fairly new or were well maintained or newish: roof, landscaping, heating systems, well, septic. electrical, etc.

Purchase price was 74k, and with only 10% down we had to pay loan default insurance through CMHC.

And although I get a lot of ribbing because in all walks of business and discussion forums because of my smalltown status, small towns have many benefits that big city investors may not be aware of:

They aren`t as sensitive to the market ups and downs, usually a rise in value is a slow steady pace, neighbours keeps an eye on vacant properties and will show a property for you if you can`t make the showing, and when you call the local municipal pols and ask them to jump, they not only jump, they ask how high

 

[gwasser]

QUOTE (investmart @ Dec 25 2009, 06:26 PM) this does not contradict 15% down. let`s use semantics.

Commercial lenders these days require you to have 35-40% skin in the game. You may try to work around that using JVs and so on. But that is the basic requirement from banks I was told. I have no experience with CMHC involved in commercial real estate, but I understand they only exist to fund residences.

Going back to the original question:
QUOTE (zapper7177 @ Dec 23 2009, 06:02 PM) How can I purchase a multi-unit property with no money down on my end. Would a VTB of 25% allow me to qualify with the bank for the last 75%? Can I use the 25% VTB as my down payment? I also know of an apartment complex which is owned by the courts and was wondering ....

When people talk about multi-unit properties and `apartment building` in the same paragraph, I gather they do not talk about a 4 or 8-plex, but about true commercial real estate. This is one of the problems we`re having at REIN when discussing investment properties.

Most of us are buying 1 or 2 units at a time rather than a 30-storey apartment, yet we`re treating them the same in terms of economics. I hear, or better, read Thomas postings about units that should cost no more than $70K per door. Exuse me, but if I look for a Calgary apartment UNIT, I see typical listing prices of $220K and if the reserve fund is in trouble the prices may drop to just under $200K.

We`re talking about comparing retail to wholesale prices. To be honest, I am not even sure that you can buy entire apartment buildings in Calgary and certainly not at rock bottom prices. The rents have been too low to justify building rental apartment buildings for the last 30 years or so, according to my sources.

Maybe that will change with the current troubles in newly build condo towers, where speculator-buyers are now in trouble. Who knows maybe you`ll be able to buy an entire building complex in trouble for $70K per door, though somehow I doubt this very much.

 

[housingrental]

Hi smalltown..
So this is exactly Thomas`s point that you were disagreeing with....

I think you`ve got hung up on his crappy town wording... the point is still valid though even if you like small towns...

You were able to get a low percent down investment property purchase because:

a) Deferred maintenance - Although only $9K of reno`s needed per your last post this is 12% of the purchase price needed in immediate renovations... IE more cash needed than just 10%...

b) You purchased in a small town. The purchase price is lower and the cap rate is higher than other areas. If CMHC declares the value of the property at an 8.5% cap rate and you can put 15% down based on this, and the market cap rate is 6.5% (IE the cap your purchasing the property at) you have to come up with more than a 15% down payment...


IE The other posts were CORRECT.... Generally you cannot purchase multi-family properties with low percent down payments... And when you can its often because the property has extensive deferred maintenance, is in a small (or "crappy" town - think Windsor - not small but not thriving), or with seller financing (though even then significant down payment from purchaser is often needed)...








QUOTE (smalltown @ Dec 26 2009, 06:26 PM) It is one hour from Ottawa and one hour from Montreal and 15 minutes from the next big city (pop 50k) so many commuters live in the town and just because it is small, doesn`t mean it`s crappy

The expensive repairs were complete upgrades (adding value to the property), windows and new flooring. Repairs cost us 8k, and if we hired someone to do them add another 1k. All other major systems are fairly new or were well maintained or newish: roof, landscaping, heating systems, well, septic. electrical, etc.

Purchase price was 74k, and with only 10% down we had to pay loan default insurance through CMHC.

And although I get a lot of ribbing because in all walks of business and discussion forums because of my smalltown status, small towns have many benefits that big city investors may not be aware of:

They aren`t as sensitive to the market ups and downs, usually a rise in value is a slow steady pace, neighbours keeps an eye on vacant properties and will show a property for you if you can`t make the showing, and when you call the local municipal pols and ask them to jump, they not only jump, they ask how high

 

[Nir]

Hi, not sure why zapper7177`s original question was not clear. the question is not how much the banks will give. as mentioned zapper7177 already knows/assumes the bank gives 75%(!) that`s close enough. His question (if I understand it correctly) is whether or not the bank will be OK with a VTB covering the remaining 25%. I believe the answer is no but close - the banks in many cases will accept a VTB of around 15% so you have to put around 10% or maybe 15% of your own money or your JV partner`s money in which case you put zero. Regards, Neil

 

[Thomas Beyer]

QUOTE (gwasser @ Dec 27 2009, 01:21 PM) ..
Most of us are buying 1 or 2 units at a time rather than a 30-storey apartment, yet we`re treating them the same in terms of economics. I hear, or better, read Thomas postings about units that should cost no more than $70K per door. Exuse me, but if I look for a Calgary apartment UNIT, I see typical listing prices of $220K and if the reserve fund is in trouble the prices may drop to just under $200K.

..
We`re talking about comparing retail to wholesale prices. To be honest, I am not even sure that you can buy entire apartment buildings in Calgary and certainly not at rock bottom prices. The rents have been too low to justify building rental apartment buildings for the last 30 years or so, according to my sources.
actually we bought quite a few over 70/door but below 80/door ..

in Calgary you cannot get anything below 150/door these days and in Edmonton 90-100/door is the new norm for decent stuff (down from 120 or so) .. and that is why I have avoided Calgary even 10 year ago when prices where 50% above Edmonton`s and rents maybe 20% higher only .. and that ratio seems pretty constant ..

We`re looking in BC, SK and AB right now .. and yes much overpriced stuff out there with rents too low for price but after careful and painful screening product can be found ..