Property under contract banks don't want to finance it.

[Abad Marroquin]

A 79 Yearl old house 3/1 remodeled 2 year ago is for sale including 3 single wide mobile homes on same lot all occupied. House rents for $650/mo and singles rent for $100/week. Owner pays water. The asking price is $109K. Banks don’t want to finance this deal because of the mobile homes in the property. I thought It would be a plus because the mobile homes are producing, but apparently for banks it’s not. There is one bank that I just applied and might finance it at 5% interest with a balloon in 5 years. I am not familiar with this kind of loans. Numbers so far look as follows.

Purchase price 109K (home inspector scheduled to inspect it)

Total monthly rent $1950

Property Taxes $57

Insurance $70?

Water $120

P. Mngt $195

Cap Ex. $200

Vacancy $100 (5%)

Maintenance/repair $200

Mortgage Pmt $580

Cash flow about $514 monthly. 

So far the numbers are not looking too god. I might place a cash offer much lower since banks don't want to finance it. A number that would at least give a 15% ROI. Please I need your opinion on this deal.

[Adam Johnson]

Portfolio lenders have beeen mentioned, I agree.  My guess is that you are talking with a large, traditional bank that will likely sell the mortgage to Fannie or Freddie shortly after the deal closes.  To do so, it has to fit in their neat little box of criteria.  The mobile homes won't fit.

You need to find a commercial mortgage lender or a (most likely) smaller local/regional bank that holds mortgages in their own portfolio.  Ask if they do that first, saves time.  If they do, put on your salesman hat and show the banker the numbers.  Sounds like you have other things going on too, so this will be a perrson you want to stay in touch with long term for future deals.

Don't be too surprised if they mention a 5 or 10 year adjustment, that is common in commercial real estate mortgages.  There is a difference between balloon and adjustment too.  An adjustment allows the lender to adjust the rate to an index at that period of time.  Because rates are low now, it will likely mean a rate increase, but I don't worry a ton about that because I also buy properties with strong cash flow.  Rent increases will almost certainly cover the higher payment if the rate jumps a little.

Read and understand the terms on the commitment letter from the commercial lender and ask questions if you don't.