So I have a quadplex I bought for $450k, making ~$2950 monthly. I have updated one unit ($15k) and I have been able to triple the monthly revenue from the unit. I was anticipating doing the same for the other three units in August (leases expire), have a month of all four units earning 3x revenue. Then refi under the assumption its commercial rather than residential.

Estimating the appreciation on this unit looks pretty outstanding, tbh. However another deal just fell in my lap. My best friend has a brother who is dissolving a partnership. They are highly motivated to sell and will not wait until September/October. They want it now. People moving out of state, other reasons.

The new deal is $2mil for two leased duplexes (units 3/2), one leased 3/2.5 SFH, and a fully rented out storage business with vehicle parking. (They are getting $160k annually in revenue).

I want to approach a lender, but I dont have the downpayment ($400k) in liquidity to cover the $2m today, I will have it in October.

Rather than dealing with the refi, would lenders be willing to accept the quadplex as collateral? I have $100k in equity as downpayment, plus whatever the forced appreciation and market appreciation add.

Roger That said:

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Username checks out.

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Is there any first lien debt on the quadplex? If not, then yes*

Depending on your situation, you could also get a letter of credit securitized by your quadplex and post that as collateral for the lender to buy the duplex.

*assuming an appraisal will get where you need it to be

Nm

BearJew13 said:

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Is there any first lien debt on the quadplex? If not, then yes*

Depending on your situation, you could also get a letter of credit securitized by your quadplex and post that as collateral for the lender to buy the duplex.

*assuming an appraisal will get where you need it to be

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First lien? Other than the initial mortgage (conventional hard money), no.

SnowboardAg said:

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Have you thought about getting a partner or doing a hard money loan until you can refi?

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I'm running through the rolodex for someone with $400k for a bridge loan. I just need THREE MONTHS.

Even with the existing leases on the quadplex, I am netting $2k/month NOI, but most of my net I have been purchasing material or doing exterior upgrades to the property for the Sep/Oct refi.

Long/short- If there is a mortgage on the property you can't pledge it as collateral. Unless you use the same lender to purchase the second property and the LTV on the initial property is low enough to cover the second loan.

ETA: potentially your lender on the duplex couple take a second position and have the right to sweep net cash flow, but with short term residential leases that probably doesn't get you there. Where is this located? Might have some ideas for you.

The Debt said:

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BearJew13 said:

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Is there any first lien debt on the quadplex? If not, then yes*

Depending on your situation, you could also get a letter of credit securitized by your quadplex and post that as collateral for the lender to buy the duplex.

*assuming an appraisal will get where you need it to be

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First lien? Other than the initial mortgage (conventional hard money), no.

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How much equity do you have in the quadplex? Bearjew was referencing the initial mortgage when he said 'first lien'. What is the note against the quadplex? How did you come to the valuation of the quadplex?

ETA - Do you have marketable securities or any other assets that you own free and clear?

Why do you have to take down the entire portfolio? Why can't you take everything but the storage unit?

Not sure if you have a day job in addition but the asset management considerations need to be taken as storage is not ran like a MF or ran as easily. You can always pay someone but that adds to the expense line and takes away from the NOI.

One thing to consider is the balance sheet, if you blow your wad of cash on the purchase, what's left in reserve allocated for operating liquidity? You don't want to be strapped for cash trying to manage. And if you pledged your first 4plex as collateral, probably means you're not gonna be able to cash out refi with out some complications.

Unless you want to ask the partnership for seller financing for a short term period that allows you refi the 4-plex and gather up some liquidity to help out. You just have to be aware that rates have been volatile and could be higher by the time you seek perm financing.

Maybe you can look at partnering with an LP to help.

I know this is probably the last thing you want to hear but there's ALWAYS going to be another deal out there to be had. Always.

The deal is in unincorporated San Marcos. Its highway adjacent and I imagine it's like investing in Georgetown 10 years ago.

I actually would love to keep the storage units. From my guy the 60 units plus vehicle parking brings in $70,600 annually and I can double that if I finish the build. Since its fully rented we dont need someone on site to run it.

The two duplexes and SFH are fully rented as well, bringing in $87,600 annually. I can actually that by switching them to STRs. The duplex units are going for $1400 monthly, the average STR in this market pulls in $4600 monthly. However with current NOI, the cap rate is 7.53%

The quadplex, I had $110k into it initially, loan for $335k, 5 year balloon, 15 year amort. With the repairs and renovations and it being in a hot market, it should have appreciated pretty well. But the initial appraisal was residential, I want to get it reappraised as commercial once the long term tenants are out in august. I have tripled the value of one unit, initially renting for $750, now we pull in $2000-2400 monthly.

How would one go about finding an LP?

cjsag94 said:

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And are you only grossing $2950/mo on a $450k 4-plex? I'm no real estate expert by any means, but sure sounds like you are mesmerized by the monthly check and don't realize you are either overpaying or undercharging for these assets.

At those"revenues", if it has in fact appreciated as you suspect, i'd have a for sale sign out today.

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no, that's the rents prior to taking it. I'm currently pulling in $4-4.5k monthly. And I can do better once the tenants are out, like $8k monthly.

My mortgage is only $2100 a month. I think with covid the previous owners had a hard time filling the units so they took cut-rate leases. They should have been leasing at $1000/m but they took $700-800/m.

That being said, the renovated unit brings in as much if not more than the other 3 units combined.

Too many numbers flying around to put it all together, but first glance then seems you are buying properties closer to potential value for what they will be worth after you spruce them up, at least as income generating assets.

But if your thought is you are buying them for capital appreciation due to location over 10 years, and the cash flow just carries them, could make sense to speculate. Not sure appraisal will recognize that potential though, and I think commercial underwriting cares more about cash flow than property value appraisal.

Again, not a real estate expert.

I'm definitely in a "buy and hold" position. I don't mind debt, especially with all this inflation. I am not interested in selling the quadplex.

Experts in Texas have told me buy and hold and that you arent going to find "good deals." Too many people looking and sellers are seeing green. So the best you can do is find something, preferably already cashflow positive, and expand it.

5 acres in the i35 corridor with 3 residential properties, and a high demand storage business, this appeals to me. "$170k annual on $2mil" may not be a gem, shortterm, but I'm looking beyond 10 years.

when you say you are trying to turn the 4 plex into commercial what do you mean by that?

Jay@AgsReward.com said:

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when you say you are trying to turn the 4 plex into commercial what do you mean by that?

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My assumption is that he wants to get it valued based on the income approach..

Jay@AgsReward.com said:

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when you say you are trying to turn the 4 plex into commercial what do you mean by that?

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It was appraised as a residential property. It had long term tenants as housing. The leases will not be renewed. I have helped my tenants find new housing.

The units of the quadplex will all be short term rentals, there will be no residential aspect to the property. It will be purely hotel/hospitality sector.

So the appraisal I'm seeking will be a commercial appraisal. Whereas a residential appraisal does not include furniture, fixtures, appliances, etc, a commercial appraisal would.

Are yall a nonQM?

From what I've been told furniture, fixtures, etc should be a line item for a commercial appraisal. A hotel with no beds is no hotel.

I'll give you a call.

So I've spoken to my lender on the quad, local bank.

Good news. He said I absolutely can leverage my equity from ths quadplex into this new deal. As long as the value of the quad + the value of the new property is 80% LTV we should be good.

Bad news. He said their policy is that they can only lend upto $2.1mil. So if I were to tie the quad in, it would be $2.330mil or somesuch.

Good news. He said that there are bigger lenders out there that would have no problem making this deal. Essentially the "bigger lender" would hold a 2nd lien on the quad and a 1st lean on the new property, and the original bank would still have the first lien on the quad.

The Debt said:

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Are yall a nonQM?

From what I've been told furniture, fixtures, etc should be a line item for a commercial appraisal. A hotel with no beds is no hotel.

I'll give you a call.

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No, FF&E will not be a line item on a commercial appraisal. You can lend against FF&E but it won't be included in the real estate - rather depreciable assets of the company.

I see.

The Debt said:

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So I've spoken to my lender on the quad, local bank.

Good news. He said I absolutely can leverage my equity from ths quadplex into this new deal. As long as the value of the quad + the value of the new property is 80% LTV we should be good.

Bad news. He said their policy is that they can only lend upto $2.1mil. So if I were to tie the quad in, it would be $2.330mil or somesuch.

Good news. He said that there are bigger lenders out there that would have no problem making this deal. Essentially the "bigger lender" would hold a 2nd lien on the quad and a 1st lean on the new property, and the original bank would still have the first lien on the quad.

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I work at a bank, would you like me to get a lender in touch? Our legal lending is well above the $2MM mark.
Note: I'm out of state, so our loan committee may not be as willing to do something out of normal lending area. But we can always look at it.

Absolutely.

Doing the numbers with the $2m deal, the cap rate was at 7.53% and I think they are underperforming.

I use AirDNA and consistently beat the averages.

The Debt said:

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Absolutely.

Doing the numbers with the $2m deal, the cap rate was at 7.53% and I think they are underperforming.

I use AirDNA and consistently beat the averages.

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What's the best way to get your email?

Yes, we make non-QM loans as well as QM mortgages. what you are looking for would be a business purpose non-qm loan.

Aggies1322 said:

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The Debt said:

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Absolutely.

Doing the numbers with the $2m deal, the cap rate was at 7.53% and I think they are underperforming.

I use AirDNA and consistently beat the averages.

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What's the best way to get your email?

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Good stuff

Got it

Great stuff, best of luck. How did you find this deal?

AggieEyes said:

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Great stuff, best of luck. How did you find this deal?

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Best friends family and inlaws.