I have an all-cash deal in escrow right now that’s being held up by escrow’s inability to get a demand from the existing lender. Since it’s irritating me, I thought I’d share the experience, so that you’re not surprised if/when it happens to you. First: What’s a demand? When a seller sells a property that … Continue reading “Getting a demand from a lender”
Category: Debt
How low interest rates are changing the multifamily market
Had a quick conversation with a loan broker last night about the loans available on 5+ unit apartment buildings right now. You can now get a 5 year fixed, non-recourse bank loan for 3.62% interest. Let’s take a look at what that means by using the example of a 5% cap deal, which is a … Continue reading “How low interest rates are changing the multifamily market”
Private lenders are out of their minds
Am looking at buying a small apartment building and using a 50% LTV loan to do it. Why do I need to borrow money, when I have a loads of cash committed to my fund from investors? Because I’m judged by my investors based on the annual return I generate for them. Because return is … Continue reading “Private lenders are out of their minds”
One problem with leverage
Right now, with interest rates at historic lows, buyers are being tempted to use a lot of leverage when they buy apartment buildings. As we’ve discussed before, leverage magnifies outcomes, both good and bad. Today, I want to look at how one downside of leverage can manifest itself on larger apartment buildings. But you need … Continue reading “One problem with leverage”
Are apartments still worth buying?
This period of sustained, low interest rates is driving every sane person out of cash and into hard, income producing assets. Why? Because, after inflation, keeping your money in cash right now is basically like lighting 1-2% of it on fire each year. This has been true since 2009, but I think most people are … Continue reading “Are apartments still worth buying?”
The Magic Number for FHA Loans
12. That’s the magic number for FHA loans on 2-4 uni apartment buildings. It stands for 12x the annual rents. Why is 12x grm the magic number for FHA loans? 12x a building’s total annual rent (including the fair market value rent of the unit you will occupy) is basically the maximum price you can … Continue reading “The Magic Number for FHA Loans”
Why do deposits need to be sourced?
Today’s question is quick: “Why do deposits need to be sourced?” I presume this question refers to the source of the downpayment for the purchase of a property. When you buy with a conventional loan (e.g. not an FHA loan), the bank lending you the money will very often want to know the source of … Continue reading “Why do deposits need to be sourced?”
How to buy an apartment building when you don’t have income
Sometimes people come to me with the following problem: They have a bunch of cash, but they don’t have much (declared) income. They want to buy an apartment building but they don’t know how. It turns out that it’s much easier to help these people buy 5+ unit buildings than it is to help them … Continue reading “How to buy an apartment building when you don’t have income”
Your good credit is incredibly important
In real estate, unless you have so much cash it’s coming out of your ears, your credit is perhaps your most important asset. Late last year, I refinanced our 16 unit building on Reno St. When we bought the property in 2008, our interest rate was locked at 6.3% for three years. Because I hadn’t … Continue reading “Your good credit is incredibly important”
Are LA apartment building prices entering a bubble?
Recently, prices for apartment buildings in Los Angeles have been increasing rapidly. 12 months ago, you could find buildings in improving neighborhoods for less than 10x annual gross rents. Now, the range is more like 10.5-11.5x for larger buildings and up to 14x for smaller buildings. Inventory in all asset sizes is also very slim … Continue reading “Are LA apartment building prices entering a bubble?”