We closed on our first apartment building.

There were times when I wasn’t sure that we were ever going to make it to the closing table. Even the last few days were a little hairy at times. But we did, as a matter of fact, close the transaction. We are now officially Real Estate Investors!!!!!!!

There are a lot of steps to the whole transaction that I have not yet written about, but I plan to go over the whole thing in future entries. For now I am looking ahead to what we are going to do next. First we need to do is make sure that all of the terms are clear between the management company and us. They were employed by the seller, and we have decided to keep them on, and we want the transition to be smooth. Then we are going to go over the estimates that we have already received for replacing the roof and the siding, and arrange to actually have the work done this summer. I have no idea how long the work will actually take to get done, or how soon anyone can start the work, but we are hoping that the actual cost remains within 20% of the estimates. We were fortunate that the appraised value came in higher than the amount that we paid. So, we have $25,000 instant equity, plus the amount of cash that we put down. Once the work on the roof and siding is done, (and maybe a few other minor repairs) we are going to try to get secondary financing on the property and pull some of our money out for the next investment. I have no idea how much of a difference the work that we are doing will make on the appraised value of the property. The hope is that the value will increase more than the amount that the repairs cost.

Until then, I am waiting for the feeling of being a new real estate investor set in. It still does not quite feel real yet. Maybe it will feel more real when we lose on our second investment.

Commercial Mortgages

I am new to the world of commercial mortgages, but I have found it to be very confusing. I have talked with several brokers and direct lenders, and the all seem to have different standards and requirements. I have been given rates, for the same property, that were as high as 13.5% and as low as 6.75%. Some of them were willing to finance 90% LTV others would not budge from 80% LTV. All of them required some sort of basic documentation. Some of them weighted the property numbers more than our personal finances, while others were more concerned with our personal finances than the property.

I learned the basics about mortgages from the purchase of my home in 2005. Basically the bank will only lend you a percentage of the value of the home. This percentage is called the LTV-Loan to Value. The value used by the lender is the lesser of the purchase price or the appraisal value. For people buying a property as their personal residence, there are various programs that allow people to buy homes with a very high LTV and very little money down. It is much different for investment properties. Once the lender knows that you are not planning on living in the property that you are purchasing the rules change. People are not as vested in properties that they are not living in and therefore the risk of them not paying the mortgage increases.

Applying for any loan requires lots of paperwork. I knew that I had all of the paperwork that they required, but putting it all together proved to be more work than I had planned on. I have now learned to reorganize my files in order to have everything that the lender requires in one area, instead of a dozen places. I am planning to put together my own financial statement that I can update regularly with my personal information. The format and information contain will be a combination of some of the standard forms that lenders sent to me. I will give more details in a future blog once I have it all set up.

It also makes a big difference if the seller is organized and has all of the financials on their properties organized. One of the items that most lenders wanted to see was the profit and expense lists for the past year or two of the property as well as rent rolls. I am trying to keep this in mind as I set up all of the files and paperwork that I will need to manage this property. That way I will have less work to do when we decide it is time to sell this investment.

To Become Wealthy: Commercial Real Estate

I was recently introduced to a site called Loopnet.com by my realtor in Tulsa, OK. You can sign up for free, or pay for different “premium” packages for a monthly fee. I chose the freebee for now. If it turns out to be a useful site, I may upgrade. This site offers listing of commercial properties as well as some residential. It is not part of MLS, and I am not sure how the sellers can list on the site. All I know is that I like all of the information that I am learning from it about commercial real estate possibilities. Here is a brief summary:

1- Commercial Real Estate is not as expensive as I thought.
2- There are a lot of opportunities for developers.
3- Options for unconventional financing are more prevalent.
4- Strip Malls have a High Return on Investment.

So far I still have a lot of questions about purchasing and operating commercial real estate. This will be something that I will try to find more information about in the upcoming weeks.

1- amount of down payment needed for financing
2- requirements and costs of property management
3- leases for commercial tenants
4- aspects to consider of property logistics, such as parking and traffic
in the area
5- other considerations yet to be imagined

Once I learn more I will share my knowledge here.