All Forum Posts by: Jerry Poon

@Brent Coombs You're right. That should probably be the main concern here.

@Account Closed I entered a deal with a lender who said I was eligible for conventional loans. It turns out I'm not. This property is not bad and I want it. However, the new loan he is getting for me does not have favorable terms. Should I accept this deal and try to refinance asap? If so, where would you recommend me looking for refinancing options?

There is a 5-year prepayment penalty term, so does this mean I cannot get refinancing within 5 years?

@Brent Coombs I see where you're coming from now. The general feeling is that the market is very topped out. I agree with that sentiment, and in five years I doubt houses will be as high as they are today due to a correction. So if I refinance in 5 years, I will be underwater for this one.

My worry with the principal not going down is that it kills my option of paying off that loan if I wanted to. It limits my options, that's all. It also greatly increases the total money I will have spent on this. I understand that the tenants are covering it, but what I don't gain from them due to unfavorable financing terms, I consider a loss.

actually I'm probably going to lose the earnest money too. **** me.

@Brent Coombs

The exact wording is: All parties have the legal duty to use good faith and due diligence in completing the terms and conditions of this Agreement. I have done due diligence and performed in good faith in securing finance. I was misled, and now the deal is not good in my opinion. The new terms have made the deal financially unfit in my eyes.

Yes, 5.5% has a higher monthly payment, but like I said, once I can repay the loan in full if I choose, the principal is essentially untouched in the 8.1% deal compared to 5.5%. I would be paying a lot more interest in the 30 year term. I am looking at overall payment total, not just monthly payments. So just because cashflow is higher, it kills my option of paying back the loan. Actually, I am not completely understanding what you are saying in this paragraph... 

I am ultimately looking to buy and hold this long term. Its value in 5 years is not that important, but if it matters, it was appraised for much higher than what I am paying.

I had found an okay deal for a duplex, and given the market and how tough it had been to find extraordinary deals, I decided to pursue it. I found a direct mortgage lender here on these forums, and we went through the motions in applying and getting approved. I have a few properties financed, so it had been hard finding conventional lenders, and was pleasantly surprised when the loan terms he came back with were good. I was given a 5.5% fixed 15-year loan. He said I was still eligible for conventional loans due to the fact that my financed properties were under commercial loans. He was a professional, so I took his word for it. Big mistake.

I thought this was going to be a slam dunk. There was a ton of paperwork, but the terms I had on the loan made it worth it, in my opinion. Right up until closing date, I had not heard from him, and I had thought the "no new is good news" adage held true. A day after our target closing date, he reached out and said he needed more time. I fell into an immediate panic and gave this guy a call to see what was going on. It turned out that my loan application was kicked back because I was no longer eligible for Fannie Mae loans. He said he would try and get me another loan, and at this point, I was already $1600 in the game ($1000 earnest money and $600 appraisal) so I went along with it.

A week and a half later, he came back with a 7.55% variable 30-year loan. I told him I wanted a fixed rate loan, and he came back with a 8.1% fixed 30-year loan. While I am cashflowing better than with the original 5.5% fixed 15-year loan due to the longer loan term, I feel like I have been getting jerked around. It almost feels like a bait and switch.

We went from a 5.5% interest rate to 8.1%, and from a 15-year loan to 30-year. There is a 5-year prepayment penalty, so by the time 2022 rolls around, I will have paid almost twice the amount of total interest, with almost no dent made to the principal compared to the original terms. This will make it hurt severely if I ever decide to pay this loan back early.

I am now getting nothing by bad vibes from this deal. My gut is telling me to pull out, but I will be out $1600. I also understand that I will be out a lot more if I follow through with this deal.

What should I do? Has anyone been in a similar situation?

As a secondary part of this post, does anyone have any advice on what I can do to get my money back? I know that I might be able to get the earnest money back since I have tried and failed to secure reasonable financing. Any advice on how I can get reimbursed for the appraisal? The only reason I got this expensive appraisal was because this guy said I was eligible for a traditional loan. I would not have moved forward if he told me from the very beginning that this would have been an 8.1% interest rate type of deal.

@Jonathan Twombly Thank you for your input. In response:

1. What is the advantage of going small versus going with syndicates/partnerships? I am going to guess that the profit is higher, but the paperwork and hours put into organizing those structures outweigh those gains. I am currently on this "smaller deal" track right now. All my investment properties are owned alone (through financing) but I approaching my DTI wall. Right now I am inquiring about private money to try and clear this hurdle. What would you have done after you have hit the wall?

2. That is a painful lesson I've learned not through real estate but through my day job. I have paid for it, and will not be soon forgetting it. I currently do not let anyone on my REI team make decisions without me because of it.

3. That is an interesting reimbursement process. Is that industry standard? May I take a guess and say that it is these type of hurdles that have you wanting to avoid syndicates/partnerships mentioned in Point 1?

 What area is this located in?

I am interested in this as well.

Can you introduce me to a couple of those turnkey companies??