110% Financing Deal - Sanity Check - Posted by Ron S.

Posted by Michael on March 06, 2002 at 09:58:35:

I think a better strategy would to get an 80% loan from the bank. This will give the bank a first lien note with an 80% LTV. Then have the owner carry your 30% on the back end. He will have a second on the property, but he is getting more money up front. Also, since he is getting more money up front he may negotiate the price. Just my thoughts.

110% Financing Deal - Sanity Check - Posted by Ron S.

Posted by Ron S. on March 06, 2002 at 09:03:26:

I am contemplating the purchase of a multi unit (18 ? 20 units) property in Massachusetts for around $1.1 million. The owner agrees to carry 80% of the financing at market rate. Ideally, I would like to seek financing for an additional 30% to cover the difference and provide some working capital as a reserve on this property, as well as some capital to structure more deals down the road.

Here are the basic financials
Gross Income: 181,000
Operating Expenses: 45,000
NOI: 136,000

The rents are low for the area and can be raised modestly while still maintaining rents that are very competitive to similar alternatives in this area. Historically the vacancies are 2%, but I expect this to change as I increase the rents. I always assume 10% vacancy in my models as worst case. Regardless, the deal I am proposing can still service the 110% financing and provide a positive cash flow.

Question: am I going to have difficulty obtaining the 30% LTV mortgage as I am structuring a 110% total deal? Or, will the Mortgage Company get bent out of shape because I am not seeking to put any of my own cash in the deal or, that I am trying to actually walk away with this amount of working capital. My credit score is at 700.

I would like to use the 80% Owner Financing to my advantage if at all possible.

Thank you in advance for any responses given.