Posted by Truth Teller on October 04, 2007 at 18:59:47:
No not really:
Get the owner to increase his interest a little and subordinate to the Bank…
ALthough many on here will say that the owner will not do this becuase he is at risk in second position that is only true if he would refuse to make the First current if you began to default…
CHeck with an attorney but I know of no states in which the Junior lien holder does not have the right to Get the first current to protect their interest…
The Owner would have to subordinate the position to the bank but any hard money lender including my DAD would take a 20% first position and likley the boys on the Cashflow board would do it all day long…
The key t this deal is a sub position for the owner and a thorough education on Paper
what is asking price? how old? how much immediate work required? will you pay any utilities or lawn care? how’s your credit rating? what does your PFS loo like, aside from showing no cash? where are properties?
good luck with 100% financing. banks will not touch it, nor should they. HML’s also will reject the deal, because they do not go 100%. if the seller can carry you, expect to pay an inflated price and on stiff terms. you lose your bargaining power when you show up with no cash and no ability to get your own financing. you may be able to buy the property subject to the existing financing. I have never done this, and can’t elaborate.
as for the merits of the deal: understand that any information the seller provides will be self-serving, and likely incomplete. I never ask for seller numbers anymore. I compute my own.
insurance and taxes are knowable numbers. vacancy, repairs and maintenance are guesses. I combine all of these into what I call an expense load. I use a 35-45% load, depending on the age and cndition of the property. Vacancy is the expense that newbies ALWAYS underestimate.
anyway, it works like this: $64800 gross annual rents, less $25920 (40% expense load) leaves: $38,880. subtract from that any owner-paid utilities, lawn care, etc. I’ll assume the only such expense is $1000 in annual lawn care. that gets up an operating income of $37,980. Notice we leave debt service out of the analysis.
if this property were near San Francisco, where 5% cap rates prevail, you might be looking at a price of 750K. If it were sitting on the south side of Longview, TX, where 12% caps are the norm, you would pay closer to 300K.
let’s assume you can buy the property for $400,000 with nothing down: assume further you get a bank to give you a 30 year mortgage at 7.5%. your monthly payment will be $2796. this means you will have annual net cash flow of $4428, or roughly $400 per month. pretty skinny cash flow on a 400K investment. I would not do this deal on those numbers. [but if I could pick it up for 300K, the numbers get a LOT better. and in parts of east TX, I could buy these properties for 300K or so.]
My credit score is around 700. I have about 20K equity in my current home. Income is over 100K.
The link gives details of the property. I would only be paying for lawn care, maintenance [12 units x 30 each =360 monthly] and of course the mortgage [I would not give asking price]. The property is in my home town of Augusta, Ga. He is willing to finance 80%, but I am not sure how to come up with the other 20% whatever the selling price would be…no bank would offer me a loan for 20% of a property for the down payment would they?