100% Financing Deal: too good to be true - Posted by D

Posted by D on July 25, 2007 at 13:00:22:

Thanks everyone. Before I make my final decision. Do these numbers look reasonable. I’m new at this,and would appreciate your insight. Also, I’ve had two nibbles at the rental rate presented.

Operating Expenses: Monthly/Annual
Gross rents: $2,500.00/$30,000.00
Vacancy and Collection: $62.50/$750.00
Capital Reserves: $125.00/$1,500.00
Management: $125.00/$1,500.00
Maintenance: $125.00/$1,500.00
Taxes: $253.00/$3,036.00
Property Insurance: $83.33/$1,000.00
Total Operating Expense: $773.83/$9,286.00
NOI: $1,726.17/$20,714.00

100% Financing Deal: too good to be true - Posted by D

Posted by D on July 20, 2007 at 18:34:55:

Hello all,

I recently came across what seems like a great deal. The seller is motivated, as they now have two mtgs. Basically, they are giving the house away. I don’t have to come out of my pocket with anything. They are even paying all closing costs. I simply have to qualify for the loan.

Here’s the kicker. Since the home will be fully leveraged, the mtg does not provide for a very competitive rental rate. As such, I’m concerned about costs.

I’m Interested, but concerned. Can anyone offer any insight? Is this too good to be true?

D

Re: 100% Financing Deal: too good to be true - Posted by Penny

Posted by Penny on July 22, 2007 at 11:20:26:

See Ray Alcorn’s article on 100% financing. While it discusses an apartment building, the principles are the same.

Re: 100% Financing Deal: too good to be true - Posted by Patrick S. Lawson

Posted by Patrick S. Lawson on July 21, 2007 at 07:12:30:

It’s a numbers game…What are they?

Do you have operating statements from the seller?

Re: 100% Financing Deal: too good to be true - Posted by D

Posted by D on July 22, 2007 at 20:56:45:

Thanks Penny. This is a very powerful article. I’ve used some of this in my calculations. I’m hoping that my desire to acquire is not clouding my judgment.

Re: 100% Financing Deal: too good to be true - Posted by D

Posted by D on July 22, 2007 at 20:52:51:

Unfortunately, I do not have any operating statements from the seller. This was the sellerâ??s personal residence, not an investment property. The best that I’ve been able to do is to estimate rental rates and expenses to come up with a NOI that could be used toward debt service. The challenge seems to be that with a fully leveraged property, the income is eaten up by the debt service requirement.

On top of all of this, the seller wants retail. The seller does not have much equity. By selling retail, there is enough to cover all expenses for the transfer of ownership. Basically, it seems that if I can find a way to make the property sustain itself, then Iâ??ve got a good deal.

Another consideration is section 8. I believe that this would reduce the vacancy rate & collection delinquency rate variables. But, Iâ??m not sure. Most appliances are new and the property is in good shape. So, Iâ??m thinking that the maintenance rate is reduced. All and all, I just want to make sure that Iâ??m not â??tweakingâ?? the numbers to make it look better than it really is.

Re: 100% Financing Deal: too good to be true - Posted by StevenS(CPA)

Posted by StevenS(CPA) on July 24, 2007 at 22:11:05:

This sounds like a savvy investor is fleecing you. 100% financing at the top of the retail market leaves you no room to do anything in most markets (unless the rental market is much higher than the purchase market).

He knows if you buy you will be stuck with the payment no matter what happens in the rental market.

What I would do is a straight option (no lease) until I have another buyer lined up to buy the property (with your 100% financing) at a slightly higher price and interest rate than you are being charged. And I would reduce the sellers price as much as possible.

This is almost like “who is the greatest sucker rule” and it’s always the last one stuck paying the note. Don’t let that be you.

I hope this helps