Mike’s Apartment Blog

Another opportunity local to my area has shown itself. It’s funny how these opportunities blossom, only to shrivel up and die more often then not.

No doubt, the game has changed. What makes opportunities tough to get done is the constant rule changes. When rules like loan qualifying, short sale approval, and seller expectations keep changing, even the most steadfast buyer cannot make it happen.

I hear a lot of folks stating “cash is king”. It’s a fun buzzword and people like to say it a lot about real estate investment. They believe great deals can be purchased for all cash. I have not found this to be true.

All investment decisions are based on ROI and, more importantly, IRR. The big draw to real estate is the availability of leverage which allows you to multiply your ROI. In absence of this, ROI suffers, often times leaving you with an average investment you could beat by investing in other markets.

Until leverage becomes readily available, real estate will continue to be ostracized by the investment community.

Does this mean time to get out? Heck no! Being the investor who can see when financing comes back will position you to make incredible returns when the pent up demand for commercial real estate returns.

Talked to a commercial loan broker today.  Loan rates appear to be down (big surprise), but some banks are now willing to lend.  I believe they are seeing opportunity return to the market.  The particular loan we were looking at was rough quoted at 5.70% rate, 75% LTV*, 25 year amortization*, due in 10 years.

Another broker had some even more interesting input for me today.  He has access to money at 80% LTV, which would allow a 10% seller’s second*, provided the debt coverage ratio* did not exceed 1.25.  That means 90% LTV!  Those are better terms than residential financing!  In an incredible turn of events, it appears banks have made a complete inversion (commercial used to require much more down than residential).

This will be a major boon for the negotiation I am in currently.  The sellers and I are about $100k apart from an agreement.  If they are willing to carry back at reasonable terms, there might be hope.

It appears that apartment money is starting to flow once again.  Happy days…

* – if any of these terms confused you, suggest you read The Complete Guide to Buying and Selling Apartment Buildings, by Steve Berges.  Like now.