All Forum Posts by: Scott Hubbard

We need more information.

1. What is her P/I or mortgage payment? 2. How many years are left to pay on her note? 3. What are the market rents for the property? 4. how much in rent are you charging her?

Taking over the loan will likely mean you qualifying for a new purchase money loan, but you can ask the seller to finance you instead.

The margin seems a little thin for a flip as a roof and AC could top 10K. If the mortgage is aged, then you might get some value renting the property allowing the renter to buy down the principal.

I have this issue with loans under $50K too. As you get more properties under your belt, you can avoid this through the use of credit lines and portfolio loans.

Ignore the banks advice in as much as them dictating to you that a commerical loan is the way to go. This is their way of putting a square peg in a round hole.

First, leave no stone unturned and look to smaller state and regional banks or credit union's. You will be looking for a bank or credit union does protfolio lending (warehousing), which is typically a loan that is not resold on the secondary mortgage market, so they have some flexibility on terms and rates.

Credit union locator http://www.ncua.gov/NCUAMapping/Pages/NCUAGOVMapping.aspx

Banks Locator
http://www2.fdic.gov/idasp/main.asp

Pull a list of banks and CU's headquartered in your state and preferably near your location. Start calling and ask for a loan officer in charge or branch manager. Ask them the following:

1. Do you originate in-house non-owner occupied investment properties?
2. Do you originate loans under $50K?
3. What type of loan amoritizations do you offer?

Typically they cannot give you rate but they can offer you amoritizations. Since the principal loan amount will be low, your ate will typically be much higher than the prime lendin rate.

Second, if you find it difficult to locate a lender that is willing to work with you, then you probably will need to take what you can get, then after a year or so, go back and refinance into a residential or commerical with better suited terms.

Thirdly, if you have the opportunity, you might try to raise the necessary capital from friends and family paying them a similar rate of return to what your being offered now.

Most of my capital is raised privately and I am paying much higher rates than quoted you. The idea being is that I forgo origination costs and have the fleixibility to offer cash to the seller leveraging a better price. So, if you have the opportunity to raise capital, this is a good way to build your invetment portfolio.

Hope this helps.

Troy-

Your expectations and utility for this investment is something only you can accurately assess. Here is my take on the investment.

1. Price: In looking at the price, it seems to be inline with market rents (PP is 2% of gross monthly rents).

2. Condition: This is one of the most important considerations because capital expenditures can affect your cash on cash returns. Sounds like the electrical is dated and the panel may need replacement.

3. Comparison: You need to qualify this purchase along with recent purchases (if possible) to see if price, condition, and rental rates are comparable.

4. Financing: You do not want a 20 or 30 year amoritization because your planning on using the cash flow in retirement. This makes sense only if your not planning to buy more rentals.

By extending the term to a 20 or even a 30 year amoritization, not only will your montly debt service decrease, you still have the option to make a higher payment when you have adequate cash reserves.

Also, commerical loans tend to have higher rates, so you may be better served with a residential mortgage. Being two units, you should have no problem with this.

5. Reinvestment: By maximixing your cash flow you can reinvest in more property down the road or diversify by putting the cash into other types of investments.

For me, the cash on cash return is too low. I want to be able to roll my cash flow into more property, so I need a higher return because I have much higher expectations than do others on this thread. If this was my deal, I would try to lower the debt service expenses.

Undoubtedly you already have an income from a job or career and will not rely on the cash flow from this investment. But, real estate is cyclical and when vacancies go up rents go down. The econonomy, in general, is also cyclical. Although you may not need the cash flow now, does not mean you will not in the future. So, these, as well as other reasons, are why we advocate maximization of cash flow.... think of it as insurance.

Assuming 50% of your rents will go to operating expenses and $380 per month to your debt service, this leaves you $70.00 per month cash flow or 10 years to repay your capital investment.

The main problem I see is your rate and term, is this a seller financing deal?

There are red flags galore.

1. No Job
2. disgruntled partner
3. unfinished
4. no cash flow coming in

What happens if the departing partner decides he was not paid enough? You will need to make sure that a lawyer handles the dissolution of the partnership upon funding. The funds also should go directly to the departing partner out of an escrow account. You DO NOT want this to go into court.

No job means no loan in my mind. While the rent may cover a mortgage payment, the guy still will have to pay utilities and for at minimum.

Unfinished is always tricky especially if funds are tight. Personally, I would rather fund enough to this complete this project than under fund it. You want him to complete the renovation ASAP.

I would probably have him complete the rental side (if possible) prior to funding so he can get it rented before the holidays.

I pay my private lenders 8 or 9%, so I would expect you to charge him somewhere in that vicinity.

There are still deals in arizona but you need to be diligent.

1. Ask your attorney to give the specific statute to which he/she is referring.

a. Is the basis a change in or a transfer of ownership. If so, can you assign the contract?

2. If no specific statutes exist, ask if disclosure and a acknowledgement would suffice.

3. If no statute exists, you could try another attorney. If you are using a closing attorney, they tend to be more conservative. You might try a family law attorney who practices real estate as they might be less conservative.

Remember, an attorney's fiduciary duty is to keep you (and ultimately himself/herself) out of trouble. Some attorneys choose to do accomplish this by helping formulate a plan of action designed to mitigate risk, while others choose a method of placing road blocks hoping to deter their clients from acting.

While what your attorney says may very well be legitimate, you need to decide if he/she is helping or hurting your business.

Correct me if I am wrong, but isn't HARP for owner-occupied?

Refer to your lease and look for verbiage related to notice . Your lease should a contingency for such an event. Usually you need to give 30 days notice to vacate the premises or some other term that is lawful in your state.

This notice should be delivered via certified mail or through service. prior to sending notice and preferably prior to expiration of the lease, you should communicate with the tenants that you no longer wish to renew the lease. This way, they are not caught by surprise.

In this notice, you should give the tenant a specific date and time to vacate. You expect them to abide to all conditions of the lease.

Should the tenant not vacate prior to the date set forth, then you may have to start eviction proceedings.

If your unfamiliar with your state's tenant laws, then you should look them up. You may also consider talking to an attorney.

Good Luck

With Chase, your generally NOT dealing with a decision maker. So, any counter offer you make will need justification.

1. If this is their initial counteroffer, you might be able to get them down a little, but that would mean coming up from your initial offer. If your trying to defend your initial offer, then I suggest quantifying those repairs with a contractor's estimate coupled with your inspection report. Banks get nervous about properties in poor condition, so that is your best opportunity for a discount.

2. Try using sold comparables that are in similar condition assuming, of course, they help your cause.

Short sales are tricky because of the possible financial ramifications to the seller.

Good Luck