Structure of a Deal

Deal Example: Core Strategy

Property Type: 5 buildings composed of 94 units – all apartments
Location: Indiana – north suburb of Indianapolis

Assessed Value = $3.5 million

Acquisition Price: $925,000

Rehab Budget: $475,000

Total Project Cost: $1,400,000

Capital Structure ($1,400,000):
    Senior Bridge Financing = $1,000,000
    Equity = $400,000

NOI: $150,000 (pro forma after 1 year, i.e. stabilized)

Acquisition & Financing Strategy:

1. Raise $1,000,000 of short-term (1-year) Bridge Financing at 12% interest.

2. Raise $400,000 in Equity Capital.

3. Acquire property “all cash” (i.e. no bank financing) for $925,000 and reserve remaining $475,000 of capital raise for rehab budget.

4. Complete all rehab in first 3 – 4 months after acquisition, so that all units are marketable in time for peak rental season, which commences March 1st.

5. Boost occupancy to (or above) 80% by 9 months after close.

6. Apply for permanent financing 6 – 9 months after close, with a target refi by 1st anniversary. Probably seek HUD financing.

7. Use permanent financing proceeds to repay all Bridge Financing and approximately 70% of the Equity Capital.

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Year 1 Valuation: $1.875 million (NOI = $150,000 at 8% Cap Rate)

Permanent Financing Proceeds = $1,406,250 (LTV = 75%)

Use of refi proceeds:
    $1,000,000 Repay all Bridge Financing principle
      $ 120,000 Repay all Bridge Financing interest
      $ 280,000 Repay 70% of Equity Capital
    ---------------
    $1,400,000