creative financing

[Indra H.]

Hello fellow investors,

Any suggestions on creative financing. I was offered a 3 family (2,100 a month in rent being conservative) that is valued at around 115/120k. The owner wants to move back to his country and is looking for someone to give him at least 90k asap (no mortgage on the property). He doesnt want to finance it himself, however he is willing to take 70l and hold the other 20k for a year or so. I am interested in the property and although i have excellent credit and steady income I don't have the down payment required by the banks (I have only used banks in the past). He wants to put it on the market soon if he doesn't find someone to buy it. Any ideas on how to proceed with this one.

Thanks for your help.

[Bill Jones]

Hi, I would certainly offer a lot less down no more than 10% to 15% and seller to hold the first for at least 5 years....Make seller the offer in writing ASAP as long as you have the down payment required see what he counters with if your rent estimate of $2100 a month is realistic sounds like a win deal

[Indra H.]

thank you for the suggestion, so what would be good monthly payments for the seller?

[Timothy Tooker]

You could do a hard money loan to purchase it. Offer him the 70k. I do not know what the rate on hard money is where you are at, but lets say it is 12% and 5 points. You would be into the loan for roughly 76k including closing cost. Once he accepts, starting working with a mortgage company that deals with investors and you should be able to refinance out of the loan before the first payment of the hard money is due. 75% LTV on the 120k value is 90,000... So even after you go through another closing, you should be no more that 85k into the house, and that is without having to bring any money to closing. Now you have equity and positive cash flow.

30 year mortgage on $85,000 including PMI at 5% interest = $677

$2100 Rental Income

- $677 Mortgage

= $1423 Positive Cash Flow

Using hard money you pay a little extra in the points, but you do not have to use your own money or go through the normal loan process on an investment property until you go to refinance it.

[Bill Gulley]

Don't mess with hard money lenders on a long term hold, that is short term money, get better terms on your seller financing. :)

[Marshall Downs]

If you have good credit / good income and the price is that far below market a bank may lend you everything. Seek out a portfolio lender. If not, see if you can get some "show money" to close the deal with at the bank then have the seller return in the form of a second. Just make certain this is not disallowed in your mortgage documents. Don't want to defraud the bank. Often a commercial loan will have fewer restrictions like this than a consumer loan. Also, if you can't seem to put it together then maybe lock it up to wholesale.

[Edwin E.]

Perfect timing. Thanks for the advise @Bill Gulley

[Bill Gulley]

Originally posted by @Marshall Downs:

If you have good credit / good income and the price is that far below market a bank may lend you everything. Seek out a portfolio lender. If not, see if you can get some "show money" to close the deal with at the bank then have the seller return in the form of a second. Just make certain this is not disallowed in your mortgage documents. Don't want to defraud the bank. Often a commercial loan will have fewer restrictions like this than a consumer loan. Also, if you can't seem to put it together then maybe lock it up to wholesale.

Kick backs are an issue in conventional or commercial, if you find a bank with a loan officer that does a wink and a nod like that, they are in trouble too. $100,000 fine and/or 10 years.

"Show money"? Lenders verify funds, if you try to borrow money undisclosed that can be another event of fraud.

Make the second up front in the contract, most lenders will look at 10% down, a seller second and a first at 80% or less. :)