Amortizations & the FHA 223 (f)

Amortizations & the FHA 223 (f)

Let’s talk Amortizations and the FHA 223 (f) I am getting a lot of calls by small investors interested in buying 16 to 100 unit properties.  Some have money; some do not.  The properties are ranging from 1930s to 1970s, mostly, with most being 1960s and 1970s product.  They are typically over 85% occupancy with average rents for 1 and 2 bedroom unit properties averaging rents of $550-$600.  These are found in Texas, Oklahoma and Kansas. All of these buyers are looking for cash flow, unlike my typical 221 d4 owners, who are looking for cash flow if they can get it but mostly they don’t want to feed it.  The d4 people seem intent on building as much as they can at less than 4.50% rates and then preparing to sell their units in 5 years when the units are occupied, at higher rents than were underwritten and when interest rates are 7% (or more) and cap rates are 5% (or thereabout).   As a result, when cash is dear, the little guys want leverage and a great return.  Almost all of these syndications are partnerships with  a General Partner and 2-5 people putting in money to make the deal work.   Look at the 2 examples described below:  In each case, the rents and expenses and occupancies are the same, the repairs are the same ($4,815 per unit) and the cap rates and costs are the same ($1,000 per unit initial deposit to the replacement reserve).  The variable is the amortization.   The client is putting in $356, 798 in each case, as required by the terms...