All Forum Posts by: Carmen Alexe

Ryan,

A few thoughts came to mind. How certain are you that the 2 properties combined market values are at $1.5MM? Did you do any research to verify this or are you just relying on the owner's information? I'm also concerned that these two properties are on foreign territory, one in MI and one in SD. You'd have to travel there one in a while to check your investments.

Also, if you try to do the refi how sure are you that the lenders will be able to use the $250K equity as your own skin in the game? And are you sure the lenders won't require you to put additional skin in the game since you haven't put any of your own money into this? New lenders will probably want to see you have more skin in the game, which means you'd have to bring money to closing. You may want to check into this if taking over these properties is something you'd consider. The answers you may get may be sufficient to help you make a solid decision.

If you take payments from him for the next 10 years consider having a contract drafted by someone in the legal field. Also, you should state in the contract what recourse you have in case of default. I'd also try to secure this note with something tangible, maybe physical assets he owns or his business (worth at least the value of the money he owes you). Not sure how excited he'd be about that so diplomacy and tact may play an important role. After all, there is no written evidence he owes this money to your dad. Good luck, and please let us know what decision you've made.

I agree with Azeez, Atlanta is a good market for the MF sector. The Atlanta economy is doing well with an influx of wealth money moving there. What is also a positive is the demographics. For example there are many young professionals living and moving there. These young folks have different priorities than the middle age or elderly folks. They prefer mobility over the "pride of ownership" thus they prefer to rent versus buy. The trend is there and it seems to amplify. The climate is also another positive factor. Overall I see several investors I know consider Atlanta an ideal market. Of course, you want to be sure that the sub-market is a good one, as well, since like each metropolitan city, there are differences b/w sub-markets.

Reginald,

You're saying location is what interests you the most. Why?

Mixed properties could make a good investment but your own homework will tell you if that is the case with this property. If I were you I'd want to be sure the Cap Rate is in line with what is typical for the sub-market. The P&L you provided is stating potential income. So, I'd want to know is the property generating this income now or is it merely a projected income? If what you see in the P&L is projected, you'd want to find out what is the actual income. And are the expenses actual expenses? I'd ask the seller if he/she had the ability to provide past income for at least a couple of years. Also, what kind of renovations have been done in the past few years. How long has it been on the market. Who manages the property. These are feasible questions you should ask before making decisions. Finally, you should find out whether the property and you qualify for financing, unless you plan to purchase with all cahs funds.

Patrick,

Chinese economy appears to have flourished as a result of less govt intervention and a more predominant capitalistic approach. I highly doubt China will seize its citizens assets anytime soon. I believe the Chinese are buying U.S. assets because they do see value in them.

Robert, I know an exceptional CRE agent in the Houston area. He goes the extra mile. Feel free to contact me privately.

Peter,

I am a CRE broker and while your current financials are decent, unlike qualifying for residential R.E. the property you're buying will have to be able to service the newly acquired debt.

I gather you're a first time investor in the commercial arena. That is not a problem even though many lenders prefer borrowers with experience. So, to compensate for the limited experience you may need to prove strong compensating factors such as:

1. Good property, with a high occupancy level, in good condition (no deferred maintenance or major structural issues), in good location (one with a great local economic growth) where absorption rates are high, good property management in place.

2. Good liquid reserves left after you close on the property. You raise the lender's level of comfort by proving you'll have money to handle emergencies.

3. If you have experience with residential R.E. that is worth putting on your BIO.

4. Finally, how your package is presented could make the difference between approval or denial.

OK, to try to give you an estimate I figured that a $90K down payment could help you purchase a $300K property at a realistic 70% LTV. I try to use more conservative figures. You'll probably get others to convince you they can do a 75% or higher LTV but I think you should keep your head on your shoulders and feet on the ground. If you do get approved for a higher LTV consider it icing on the cake but don't make your decisions based on that.

P.S. If you have other liquid assets, such as securities for example, then we can go higher on the down payment and consequently the purchase price, and use those assets as reserves after closing.

Jonathan,

What I believe he is referring to is a buyer who has the willingness to buy and the ability to assume his VA loan. It means someone who has the $20K to put down. Not everyone is eligible to assume a VA loan. Even a buyer with a VA Certificate of Eligibility is not assured he can qualify to assume the VA loan. He still has to meet the lending criteria typically: has to occupy the property, a minimum credit score, income stability, and DTI ratios. If you meet all of the above you'll probably be able to qualify for the assumption.

Now before you go through the trouble of evaluating all this, you must be certain you want to move in this property, you like the location, the unit, etc. If you don't have the $20K upfront but you'd qualify for a VA loan based on the above mentioned criteria, you could take out a new VA loan with 100% financing. You'd be living there and using the rest of the units to help you with your mortgage and possibly some cash flow. Good luck!

Hi Nicole,

Dion's advice is very realistic. As far as giving the seller upfront money I don't see how you can do it through a refi. To refi a property it means you must be on title but what is likelihood the seller will transfer the title to his property without you putting a down payment? Not only that but even hypothetically if you try to refi one day after taking title, the lender will use the purchase price when calculating the LTV, you'd have to wait at least one year typically to be able to use the appraised value. I hope you get where I'm heading to.

Being in the commercial lending arena for many years, I have not seen a financial institution do a loan where the seller second was used to satisfy the entire down payment required. I am referring to the last few years after the real estate bubble burst. If anyone here knows of one I'd love to hear about it, please. The most typical scenario for a seller second is a 70/20/10 with your contribution being 20% and the seller carrying a 10%.

William, you can either secure financing now and if you and the property qualify for a 70/20/10 this may be an option. Or, if the seller is willing to do a land contract (where you get title to the property) for 2 years, ask what's the least he'd take for a down payment. Work out terms which would be favorable to both of you. Be sure there will be no PPP, and after one year you can start the process of refinancing to pay the seller off. In commercial lending one year is the seasoning minimum to be able to use a new appraised value. So, if the appraisal comes in higher than the purchase price you're in luck.

Last thing to address. I know you've been recommended to avoid brokers. The idea is you save a point or two that a broker may charge you. The truth is sometimes it's better to use a good broker. Why?

1. An experienced mortgage broker has strong affiliations with viable lending sources. Their years of experience account for knowledge of where they can find the best financing fit for you. Even if you start doing internet research you won't be able to reach these sources easily, not to mention the time you'd have to spend contacting your researched links. Beside that you're pretty much limited to the local banks which are limited in programs. In the end, would you pay an extra point or two to get better terms than what you're offered locally? I don't know, that is your call to make.

2. Secondly, there are lenders who compensate the broker, thus you wouldn't have to incur the extra fee. But you won't know unless you experience this. In the end, you'd have to realize that a valuable service has to be compensated, whether by the borrower or by the lender.

I wish you luck!

You can only use your VA eligibility for a 1-4 unit owner occupied. Anything above that is commercial of nature and you'd be required to put a generous down payment.