By Dave Lindahl
Later in this article I�m going to show you exactly how two students of mine bought a $1,550,000 apartment complex with no money down, get a positive cash flow (spend able income) of over $51,200 per year, don�t deal with a single tenant and how they walked away from the closing with $32,300 dollars in their pocket!
You�re probably thinking, that�s impossible! It�s not, and it may actually be easier than buying single family properties with no money down.
Any time you buy a multi-family property you should have three objectives: get the highest appreciation in the shortest amount of time, put as little money down on the property as you can, get that money back as soon as you can.
The more properties you control with the least amount of money the wealthier you�re going to become.
When I first started buying smaller multi-family properties, I had to use no money down techniques because I had no money. I now look at every deal and try to get in with no money because the more properties I can buy with no money down, the more properties I can buy� and the more properties I can buy, the more cash flow I can create�, the more cash flow I can create, the easier my life is going to be!
There is one thing you must always remember when buying with no money down; the property must cash flow properly. By �properly� I mean the debt coverage ratio must be 1.20 or higher with 100% financing.
The debt coverage ratio is the net operating income (yearly income � yearly expenses) divided by the debt service (mortgage payment). This means that for every dollar that you pay out in debt service, you have one dollar and twenty cents coming in cash flow. This is the same measure that lending institutions use to determine if they are going to finance a property. It�s a nice conservative approach.
It�s easier to purchase a multi-family property with no money down for several reasons. When your dealing with the owner of an investment property, your dealing with an investor, investors care about numbers, if the numbers work, the deals get done.
When you�re dealing with the owner of a single family property, your dealing with an individual who is emotionally attached to the property. Your negotiating their the single biggest asset they have in their life.
Because it can be a challenge at times to finance multi-family properties between twenty and one hundred units, most multi-family owners had to use creative financing to purchase the property so they are more comfortable using the techniques to sell (banks make their money of a percentage of the loan amount, it takes the same amount of effort to do a twenty unit deal as it does to do a one hundred unit deal but since the bigger deal has a bigger loan amount, they make more money).
There are many private individuals that will be happy to loan you private money that they may have sitting in a savings account or an IRA if you are willing to give them an 8 � 10% return. Of course you factor the higher interest rate into the deal when calculating the numbers and if it cash flows properly, it�s a buy. If it doesn�t�not a buy.
Here�s how the Frews did it. Kevin and Kristy Frew are from the outskirts of Flint, Michigan.
Kristy set a goal that she was going to buy a multi-family property of fifty units or greater with in a six month period (it all starts with a written goal!)
They sent out direct mail campaigns, made relationships with commercial brokers, cruised neighborhoods and did what every other successful investor does�.they took action.
With in a short period of time they found a fifty one unit building that was for sale in their area. The original asking price was $1,700,000. They were able to negotiate the price down to $1,550,000. When they did the analysis, they realized that the property would cash flow at $32,000 per year with 100% financing and the rents were low (this is called a value play, you want at least one value play in every deal you do). Once the rents were raised, the new yearly cash flow (spendable income) would be over $51,200 per year.
Now the decision� how to structure this deal. They knew they could get 80% from their local lender and they informed the lender that they would be getting secondary financing from other sources. This is important because if the lender prohibits secondary financing, you need to find another lender.
Their first thought was to go to the seller and request owner financing. They asked for the full twenty percent, the seller countered back at five percent. The Frew�s countered back at ten percent but to no avail, the seller would only give five percent. Now they had to come up with the other fifteen percent.
They owned a single family property and were able to take out an equity line and come up with another four percent.
They then turned to friends and family members. After making several requests, it turned out that Kristy Frew�s father had always wanted to be involved in real estate and never took the time to be trained. When they explained the deal to him, it was obvious they had a deal that �worked�. Soon Kristy�s aunt wanted in on the deal as well. Between the aunt and the father, they came up with the last eleven percent.
Within her six month deadline, Kristy and Kevin Frew bought a 51 unit apartment building for $1,550,000 with no money down, created a $51,200 a year positive cash flow and walked away from the closing with $32,300.
How did they get the $32,300? He has his real estate license and that was his commission.
Won�t it be great when some one gives you money to take a million dollar property of their hands, a property that actually pays you month after month to have a management company manage the tenants�those are the same tenants that are paying that building off for you! What a country! Though it won�t happen unless you TAKE ACTION!
David Lindahl, also known as the �Apartment King� has been successfully investing in single family homes and apartments for the last 10 years. David regularly shares his secrets and experience on the same stage as Tony Robbins, Robert Kiyosaki, and Donald Trump! If you would like a free copy of the Special Report: 27 Ways to Buy a Multi-Family Property with No Money Down, please go to http://www.davespecialoffer.com/
