How to Buy an Apartment Complex With 100% Owner Financing
Buying investment real estate takes research and planning. In many cases, it also requires a significant amount of money. However, if you are interested in owning an apartment complex, you may be able to find an owner willing to carry 100 percent of the financing. This is not an ideal way to make cash flow, but, given the right situation, it may be a wise investment. Hire an attorney and commercial agent, perform your due diligence and work to make your apartment an income-producing investment.
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Instructions
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Find a seller willing to carry 100 percent financing. Search the Internet and ask your commercial real estate agent for distressed apartment owners who need to sell quickly. You also can approach sellers who are interested in a traditional sale but will consider owner financing. This may take some time, so expect to be rejected before you find an owner willing to work with you.
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Ask for all due-diligence documents once you find an owner willing to carry the entire loan amount. You will need to see items such as the rent roll, lease agreements, vendor contracts, late-paying tenants, income tax forms, property tax bills and other important paperwork that will help you analyze the feasibility of the investment.
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Hire an property inspector to review every unit and aspect of the complex, giving you a comprehensive list of its condition. Show a contractor if repairs are needed, and obtain an estimate of the cost.
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Hire an appraiser to give you the market value of the complex. This will include an analysis and comparison of neighboring properties in addition to the current income-producing value. Then you will know how much to offer for the apartments.
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Show that you qualify for 100 percent financing, if you feel that the apartment will be a good investment. Since you will not be placing any money down, it is a very high risk for the seller. Pull your credit report and copy your bank and income statements to prove that you are a financially responsible. Compile a resume of any apartment ownership and management experience that you have to show that you can make the complex succeed.
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Negotiate the terms of the note. A mortgage with 100 percent financing usually requires a higher interest rate than a conventional commercial loan. Research the current interest rates and determine the maximum amount that your monthly payment can be for you to earn cash flow or break even.
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Determine if you will have a 20-year loan term or a balloon payment in a shorter time frame, which will give you an opportunity to find less-costly financing and the owner an incentive to sell to you knowing that payment will be made in full in just a few years.
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Have your attorney review the contract and the note. Take the documents to a title office and have them search the title history. If you're satisfied, close the sale.
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Tips & Warnings
When calculating your monthly expenses, add in the local area vacancy rate and a percentage for repairs. Call the property assessor's office to estimate your new tax rate on the apartment and factor in the monthly cost for property taxes. Call a commercial insurance agent for a hazard policy quote and make sure that you have insurance on the property before the sale closes.
When reviewing the leases, look for a pattern of new lease agreements. This may be due to the owner stocking the apartment with unqualified tenants to make it look occupied.
