**Minimum Down** Deal Analysis

[Vlad Vdov]

Here is the Deal!

Owner going into foreclosure pay off amount is $43,146.75 on the property (including escrow taxes, back payments, insurance, fees, etc.). This is the pay off amount according to the lender. Her goal is to walk away from the property.

FMV is $74k conservatively. Local comps are showing an average of $82k to $86k for similar property.

- FYI - Annual debt service is calculated based on an asking price of $57,529.18 w/ 75% LTV. 30 year term. 4.625% interest rate which comes to $2,661.96 annual debt service

Monthly Rent $750.00

Vacancy Allowance @ 10%

Expected Annual Gross Income $8,100.00 

Estimated Annual Operating Expenses 

Insurance $400.00 

Property Taxes $2,861.00 

Property Management (10%) $810.00 

Repair/Maintenance (8%) $648.00 

Total Annual Expenses $4,719.00

Net Income $3,381.00 

Annual Debt Service Mtg #1 $2,661.96

Annual Net Cash Flow $719.04 

Loan Principal Reduction $541.00

Combined Return $1,260.04 

I think the property does well w/ 75% LTV on the purchase price. I want to structure the deal so at closing I only pay for closing costs, underwriting costs for MY lender for the loan, and also to pay off her note..

My goal is to obtain the property for minimal cost.. I just don't know how to structure it... I don't know if this makes sense but I was thinking to put down $57,529.18 for sale price and do 75% LTV making it a pay off of $43,136.75 on her note (which is the sum that she owes) then the $14,382.43 money down on the property would I take it back?! Would this be legit?

I know I have something here I just don't understand the right way to structure it to make it work for both of us.. Please share your experience and what you would do in my shoes!

Thanks in advance!!

[Ryan Gillette]

It's a good idea to sit with a lender just to ensure you're both on the same page and you structure it correctly. It's not a super complicated thing - it might just look like it by the length of the clause. Basically if you buy a property cash within 6 months of purchase, and document it was cash and where the cash came from (ie. not a mortgage secured by the subject property), you can receive the lesser of 70% LTV or the amount you put into the deal (purchasing costs on the CD) back in cash at closing. The most common uses are for rehabs or when someone purchases below market and wants to substitute it with a mortgage. You can do it with cash or with a HELOC draw on another property - it just can't be a mortgage or debt secured to the subject property.

From the lender's standpoint, they're concerned only with your ability to repay the loan and their equity position at closing. If the property is valued by their appraisal to give you a 30%+ equity position, even if it was just purchased for less, that's all the lender is concerned with. That is, in the unlikely event they have to foreclose, they care about the true market value of the asset - not what you paid for it a month ago due to x,y,z circumstances.