Posted by Bill Farrand on May 03, 2006 at 20:26:00:
Russell,
Do you own any other RE with equity to cover the 20% down? How about a HELOC? 2nd lender will want some beef as John has described.
I can tell you from experience what you are asking for can be difficult. It’s not totally impossible but highly unlikely.
If you could offer the 2nd some other assett or equity they would be much more secure in their investment and you would be putting some beef on the table in the form of equity or cross-collat.
Hey is my dilemna. I have 6 unit property in Brooklyn, NY that had an asking price of $550k. After talking to my mortgage broker I was told I could get a couple of different loans for invesment purposes (2 fam, 3 fam, 4 and 6+). My problem is after I found this out I called the RE Broker back and told him $525k, then the seller accepted my offer. I don’t have the 20% down payment. I was thinking of looking for an investor for the down payment and repaying him/her after 1 year with maybe 20% interest. Is their anybody here that knows of anybody who will lend money in the NYC area.
Posted by Shambhu Nath on May 05, 2006 at 18:29:46:
You may want to post it on commercial forum and cash flow forum. Commercial lenders are not as picky about down payment as the residentail lenders and so it might work for you but it is always hard for any one to be in second position.
You can probably create a note for 2nd, but again most people won’t buy it as there is not equity left. If some investors agrees to go in 2nd position, they will need a high interest rate that you may not have any cash flow left afterward. If you can cash flow after 80/20/0 loan, your rOI is unlimited which is not realstic.
I think your parternship idea might work if you can find some one to do the deal. Harmoney lenders won’t touch it as they are usually based on low LTV loans.
Posted by Bill Farrand on May 03, 2006 at 06:20:55:
What is the current market value? How are you going to get the money to pay back the 2nd lender in 1 year? Also, will the 1st lender allow a 2nd lender and allow you to buy no money down and 100% financing? (Most all commercial lenders want to see you with some meat on the table.) Will the property cashflow on the plus side with 100% financing?
Just a few questions to answer before you take on a potentially non-profitable deal.
I am trying to get a private lender for the down payment. My lender doesn’t care where the money somes from as long as I have it. With a price of 525k the down payment would leave me with a 400k mortgage. I would then refi in 1 year and repay my initial investor the 100k plus the interest, leaving me with a mortgage of the initial 525k. With a RR of 5473 my cash flow would still be positive after I refi back to 525k.
The 1st lender won’t know their is a 2nd lender.
I am trying to get a private lender for the down payment. My lender doesn’t care where the money somes from as long as I have it. With a price of 525k the down payment would leave me with a 400k mortgage. I would then refi in 1 year and repay my initial investor the 100k plus the interest, leaving me with a mortgage of the initial 525k. With a RR of 5473 my cash flow would still be positive after I refi back to 525k.
The 1st lender won’t know their is a 2nd lender.
The lender does not care where the money comes from as long as I have it.
The 1st lender won’t know there is a 2nd lender.
This is starting to smell. Litmus test. Will the lender in 1st do the deal if you fully disclose on the loan application and the closing documents that you are borrowing the funds needed to close the deal?
If not you are posting publically that you intend to commit mortgage fraud (a criminal act). Not good to advertise it as such posts become evidence for a future trial.
Lets assume that you are trying to hide the source of the funds. The person putting up the cash has no lien or other way to secure the loan on the target property. If you want to record something after the fact they are naked for a period. Hence they would need to be a bit dumb or into taking risks. They also could be seen as participating in mortgage fraud if they really understand what is going on and why they need to dance around the lien timing.
Best to use a lender in 1st that is fully aware of the facts and will still approve the loan.
If you have found such a lender then all of Bill’s questions matter and I am not sure you have really addressed them. In particular, what will cause a lender 1 year from now to want to do the refi if the NOI is largely the same? Why will then want to refi at 100%?
I am not trying to commit mortgage fraud. I might then need to establish a LLP to use someone else’s capital, correct? This way they become an equity partner until I refi in 1 year. My lender has pre-approved me as long I as I can generate a 20% down payment.
I am basically trying to find a way to get the down payment. Similiar properties on the same block sold for 650k. The 550 asking price (525 offer) is because they (owner) wants to get rid of this and 3 other properties so they cam focus their time on some other bigger property.
Using an LLP or other structure might be part of the answer.
More to the point you need to be in line with the lender’s requirements. If they want to seasoned funds and require that the funds not be from a loan then that is what needs to happen. If they only want to see cash at close and do not care to ask about where you obtained the funds (no question or statements about the funds or the source) then all you need is cash at the close.
It is about being straight and disclosing the details that are requested rather than trying to hide something from the lender in 1st. If you know you are hiding something that they did want to know about you have a problem. If the lender is just dumb and failed to ask the right questions (honestly failed to ask) then you are not required to spell it out for them.
If someone else or an LLP is going to be in the deal they will need to be on the title and likely have to be qualified by the lender. With commercial this might not always be required.
If you can find an investor who is willing to loan against something else and the lender does not care about the funds being borrowed for this deal you would be OK. The lender still sees cash in the deal above them.
Be careful with mortgage brokers. Some unintentionally suggest ways of applying for the loan that are not legal. Others know they are cooking the deal. A good one will not let you do something that is illegal (if they know about it) as it reflects on them.
There is a lot of gray in many RE deals so you need to consider if a deal smells right before you put your signature on the paperwork.
Will the seller carry a second for part of the price?
OK, I guess I didn’t explain my situation correctly and so it sounded illegal.
The seller won’t carry, they are trying to dump the property and is selling it as is. The lender only wants to see cash at closing and thats why I’m trying to get an investor for the down payment. I don’t have the down payment as I made an offer as soon as I got preapproved and didn’t think about the 20% down. I am trying to find a way to get my down payment before I loose the property.
Posted by Chris in FL on May 06, 2006 at 22:40:27:
Rdance,
If it looks like there is no way you can get the 20%, and you might lose the deal, why not try to wholesale it? In that area there must be investors that would be interested in a $650k apt building for $525 plus small fee for your trouble. Might not be your first choice, but beats nothing at all. Best wishes!