All Forum Posts by: Craig L.

I'm trying to work a deal for a 4-plex in which I take a little bit of cash back at closing, or at least have financing cover all closing costs and prepaids. Purchase price is $140k, existing mortgage is about $50k. Could I get a lender to give a first mortgage of say 60% LTV ($84k)? This leaves $33k after the existing mortgage payoff. If I can get the seller to hold a second mortgage for $63k that would give him $26k and me $7k at closing.

So my question is, given that the overall financing would be 105%, would a conventional lender grant a 60% first or would it have to be lower, or would they even do it at all? If the seller is fine with their second mortgage and 105% financing, what other sources could I use to get that first mortgage?

Thanks!

r2,

Was that first mortgage from a bank? It is my understanding that banks care very much the source and amount of the second mortgage and whether or not the buyer has any of their own money going into the deal (nevermind getting cash at closing!). I'm not saying it is impossible, just wondering what the details were and how to get around the issues with the bank. Maybe it is different with commercial mortgages, I don't know.

You mean (ARV x 70%) - repairs, etc. = max purchase price.

You want to profit at least 30% of the ARV. Arguments can be made for less than 30% if the value of the house is high enough and/or repairs are minimal.

Depending on what method you will use for purchasing, I would actually line up financing sources before I even thought about putting an offer on a property. If you're flipping and using a hard money lender, they often will want you to purchase with an entity, in which case you'd want to form one before you made any offers. Remember, the clock starts ticking fast once you have an accepted offer. Failure to follow through in good faith on a purchase contract can damage your reputation and cost you future opportunities.

I can see both sides of this argument over whether it is accurate and/or useful to use 45-50% of gross rents as a an expense estimator. On any SINGLE PROPERTY your actual expenses could be very small or could be significantly more than the 50% of gross rents figure.

The thing is, you could be getting positive cashflow on 9 out of the 10 houses you bought using a house-to-house individual expense formula and still be bleeding money on your total investments because of that 10th house. For each and every property you analyze to purchase, you have to account for ALL of your other properties. By treating the expenses of your properties as a whole you prevent cashflow catastrophes from happening. You can take it in stride when your tenant trashes one of your houses because you had accounted for that bad egg by spreading the expense over all your properties.

And when your tenants all behave and have extended stays in your houses you are pleasantly surprised. Under-calculating your expenses is as dangerous as purchasing on the basis of speculative on price appreciation.

r2,

You are assuming a $4k/mo. appreciation of your apartment complex. The way I understand it, commercial properties like that are valued according to the income they produce. So it would seem that any appreciation of the property must occur due to increasing rents and can only be realized when that happens. Moreover, 10% per year, every year, seems very steep for rent increases.

Am I way off here, or does this make sense?

r2,

You are assuming a $4k/mo. appreciation of your apartment complex. The way I understand it, commercial properties like that are valued according to the income they produce. So it would seem that any appreciation of the property must occur due to increasing rents and can only be realized when that happens. Moreover, 10% per year, every year, seems very steep for rent increases.

Am I way off here, or does this make sense?

I think one effect that the sub-prime lender implosion is going to have is to increase the number of people who will consider a lease/purchase. They will go to their mortgage broker and find out they can't get a mortgage but still want to own a home.

I'm in the process of building my team -- specifically, finding a realtor to listen to my REI goals and bring possible deals to me based on them. I've heard others advise finding a realtor that works with other investors since they will be more in tune with what is and isn't a good deal for an investor. However, if I'm just starting out and am working with a realtor that works with other investors, I doubt they will be presenting me with good deals. They'll be bringing them to their other investor clients with a good track record and simply give me the deals that those other investors pass on (i.e. the poor deals). Do you just have to accept this until you have a proven track record, or should you find a realtor that doesn't work with other investors?

Thanks for the reply, Mike. Did you use the services provided by Donna's office to do the purchase transaction of the notes? Did you pay cash or finance the notes?

I am still unsure how note financing works outside of flipping the note once it is under contract. What I want to do is buy non-performing mortgage notes, restructure the mortgage for the mortgagee (if the conditions are right), and have a deed in lieu of foreclosure clause. I'm just not sure where to go to get financing.