All Forum Posts by: Paul B.

Hi @Matt Devincenzo , thanks for the response.This is actual assumption vs. subject-to.

@Michael Smith ; awesome! thanks for looking into it.

@Wayne Brooks ; I was skeptical too but the bank has sent over an assumption package to the owner, so I think it's legit. I'll know more when I see it though. Thanks for the response!

Hi All,

I'm looking for folks who have assumed a mortgage before and can help me figure this out. Ok. So here's the deal. I've got a mortgage assumption on a multifamily property (4plex). Straight-up assuming a loan is something I gather that is rare these days, and is usually only done on FHA. And that's what I'm looking at here. The questions in my mind have mostly to do with the mechanics of setting this transaction up properly and also protecting myself and the owner through proper documentation. I've previously used regular sale and purchase agreements for my transactions, but given this is an assumption, it's going to be a bit different. I'd like to figure out what that "assumption contract" needs to look like and what to watch out for in closing this. I've got an "assumption agreement" example that takes care of the mortgage assumption part of things, warranty deed, and release of liability to the owner, but in my mind leaves off a lot of things I would want to have in a contract for sale & purchase of this property.

In this case, I'm not sure what happens for insurance, taxes, rents, and interest up to "closing". Is all pro-rated as with a regular purchase agreement? Do we still split transfer and recording charges? It seems that would still need to be spelled out. Thoughts?

And I think the contract needs other items, such as stating inclusions/exclusions, non-encumbrance, permanently attached fixtures, property condition on possession, final inspection rights, warranties transfer, title search and transfer of title, and contingencies.

I understand that there may be a fee from the lender for the transaction in the neighborhood of 1%?

What contingencies are still valid in this kind of transaction? The ones that stand out for me are termite/WDO, and home inspection. I can't see any reason for an appraisal or financing contingency (I have the property next door, so I know what the appraisal will be). Is it a poor assumption to go into this as an "as-is" transaction? What has been your experience here? Have you made a home inspection a contingency on an assumption?

Lastly, I'd like to do my own escrows, versus what the current owner is doing now. with all rolled into the payment. Is it possible to modify the agreement between the bank and the owner when assumed by me to waive escrows? Does that need to be in the assumption agreement/contract? What happens to the PMI the owner is currently paying?

I think one "gotcha" here I can think of is to make sure the owner continues to pay the mortgage after we sign the contract. I sense "badness" if he does not.

Lots of questions. I'm sure someone has traveled this road before and can help. I leave it in your capable hands! Thanks a lot everyone --

Hi @Anthony Taslimi

Great to see you here. You are in the best place to educate yourself on real estate investing, which in my mind is the first step in reaching your goals.

Check out the Ultimate Beginner's Guide here:

http://www.biggerpockets.com/real-estate-investing

Cheers,

Hi @Hugh Hartwig

I agree with last post that <1% is not viable unless expecting capital gains.

Also wanted to say howdy as fellow Huntsville investor. Cheers,

I'll also throw out there that your local bank may provide more attractive downpayment terms, but likely you'll contend with shorter amortizations and balloon payments. Depends on your investment strategy what is best.

Hi @Benjamin Christensen

Having just gone through this myself, yeah, 25% is the requirement from every conventional lender I spoke with.

What are the seller's needs? How about seller-financing? Would they be willing to carry paper? That's one way. You could also lease-option the place. Do you plan to live in it? You could do FHA.

If you talk them down to their original price, or hopefully lower, that's $22k (plus closing costs). So you're likely short $7-10k (include some cash cushion after closing). You might could find a partner to make up the balance, our a loan from a family member. Otherwise, yeah, hard money or maybe try the methods from the last podcast on crowdfunding? Just throwing out ideas.

Looks like this property would cash flow pretty nicely.

Paul

Hi Oscar Martinez and welcome. I agree with last posts above concerning building your team first. Note I would recommend finding an accountant familiar with REI, not just regular CPA as they will not know the tax strategies associated. Usually what I've seen is purchases (with conventional loans) have to be made in your own name and then after the fact transfer of ownership into an LLC. I looked at this entity thing a lot and LLC seems to be the best for passive REI. Look into single-member vs. partnership LLC in your state and the differences in liability protection. Here in AL it does not matter much. Community property states have slightly different circumstances.

I saved money early on by using online legal paperwork such as Nupp legal and Nolo. Mostly for purchase agreements; letters of intent and property condition addendums. I used a closing attorney to check my contracts over (read: less $ than him drawing the paperwork for me) and he of course closed for me as well.

Many resources on the web for REI that are great (loopnet, etc). Find an agent that is an investor. Most are not. It's always one of my first questions to them before proceeding and I ask the office manager for the investor in the office. Most of the time this works. If you get a regular agent you will waste a lot of time, guaranteed.

Best of luck in Miami!

Hi Zac Gilliam and welcome to BP! I'm also in the Huntsville area and we're relatively new to REI. We own a couple properties now in the area. Huntsville is an interesting market. There is apparently a couple of REIAs here, but I have not been to either. Anyway, like you said, lots to see and learn here on the site. If you've run into them, the podcasts are great. What is your investing interests (SF, MF, MHP)? Have a good one,

Hi - I have an investing strategy question. I'm taking a long term view to my investing. I currently have two buy and hold multifamily properties that were acquired with traditional financing at 3.75 and 4.25 rates, 30 year, 25% down. Monthly interest expense is pretty minimal, about $300/mth each. So the cash flow on each property is greater than the interest expense. Strategy-wise, is it better to pay off the mortgages as early as possible and leverage the equity for additional RE purchases, or to save & invest the cash flow as portfolio income and then make additional RE purchases? With interest rates likely to continue going up, do additional loans make sense versus saving & investing with the cash? And I think part of the answer lies in how fast you want to acquire properties. Would also be interested in Chris Clothier's opinion on this as his blog on leverage sparked the question. Thanks!

Hi Ross - I'm a new guy too and working full time as well. I also like MF. I used resources like loopnet and commercial sites in addition to MLS sites to find properties. Also I talked to a few property mangers to find out more about the neighborhoods. I've found sometimes what seems like a "bad" neighborhood actually is not so bad. But sometimes they really ARE bad, and a good manager will know which is which. I also found a local broker that knows the area very well and built a relationship. They know where good investments are and are not. That's the whole mentoring thing folks talk about here on BP that I agree with wholeheartedly. Hope this helps.