Trying to get my first commercial deal.

[Jack Middleton]

Working on my first deal and got a roadblock before offer was written.

The unit is an 8 plex owned by a woman with nothing owed on it.  This has been for sale for a little over a year.

Asking $199,900

I asked the broker if she would do seller financing, since she doesn’t owe anything on this and she was open to that.

A little detail- Cap rate=12% DSCR=1.9 COC (based on my offered down payment)= 109%

I offered full price with $5,000 down, 4.5% with a 20 year amortization and a balloon in 5 years.

She came back with $25,000 down and a 2 year balloon.

I countered with $12,000 down and a 3 year balloon.She (and her grandson) wanted to settle on a 7% 3year, but they wanted to stick with the 25K down.

I don't have 25K at the moment, so I was wanting to stick with 12K

The broker mentioned that she would need the 25K because her closing cost would be around $15K.

I told him I didn't think we would have closing if she is financing and was told that we would go through the normal closing at the title co. and she would need the closing.

So, I am confused.  I contacted a broker that I have been working with and he said that sounds absurd. Unless she has a note (I asked and there is none) or unless they were wanting her to pay a fee up front.

This would have been my first commercial deal, but I’m thinking I’ll need to walk away.    Maybe check back in a few months….Any thoughts?

This negotiating is exciting, none the less.

[Duke Marquiss]

Almost all of the closing costs are the commissions.  I have been a Real Estate  broker since 1974 and have sold a lot of property with seller financing.  I always charged more commission than any other brokers in the area but I would take my commission the same as the seller.  In your example, I would take my percentage of commission as money came in, on the down payment and on each payment received.  Most of the sales were 10% commission on vacant land.  Let's say the agent would get $1,200 (if 10%) and each payment would be a little slice to broker.  He could increase his percentage slightly above normal and then agree to the above.  Broker has to get the ok from the managing broker.

The other possible option is to break the financing into a first and second mortgage. Assume $200,000 sales price, $140,000 first, $12,000 down and a second mortgage of $48,000. Find someone that will buy the first or the second mortgage at the table. She has more money, and you have a deal. I structure these type of deals at 6.99% on the first since it is a 70% LTV and ammortize for a long period of time, then I do the second mortgage at 7.99% for a lesser period of time. The buyer for the first is usually a retired individual that is looking for long term higher interest than his bank is willing to pay and it is secured by a real estate mortgage.

The second mortgage, the seller can hold for a period of time, they are familiar with the property, they have gotten the down and the sale of the first so they have money in their pocket and still have an income that is higher rate than they can get at the bank, or you can help find someone that will buy the second for a short time while you get property up and refinanced.  Agent got full pay, seller got property sold and got their money and you got the property.  If brokers would look at the problem in a different way, it would change what they see.

Good luck.