Posted by Craig (IL) on March 16, 2002 at 19:18:10:
Check with your county tax office to find out that figure and whether or not there are any back taxes due. Check with the county recorder’s office to see what leans actually exist and who or what entity is on the deed. Check with the local zoning office and make sure there’s no problems there. Do enough checking to be sure you know rental rates in your area.
The owner should be willing to show you lease/rental agreements so that you know what rents actually are and whether or not there are one year leases (when are they up?) or month-to-month agreements. If there are month-to-month leases, of if any of the renters are relatives of the owner, count on those people leaving as soon as they can.
As far a cash flow, most everyone will tell you to ignore CAP rate on this small of a place. Instead, figure 75% of the monthly income–that’s right, only 75%, don’t use any more than that no matter what you may think. Lenders use the 75% figure, and it gives you some room to deal with losses from vacancies and maintenance. If the place is old (older places require more maintenance) or there’s deferred maintenance, use less a figure lower than 75%.
One mistake you may be making is that monthly costs include not just the loan, but taxes and insurances. You need to figure no only the loan, but taxes and insurances and compare that figure to rental income. The current owner will problably have no problem telling you what he or she pays for haxard insurance and don’t forget you will have mortgage insurance.
Additionally, there will be other costs associated with the loan, money you willhave to have at closing, and when you sit down with a lender he or she will let you approximately what they will be. To be sure, your gonna need much more than just the down payment amount.
Other ways to take this property is owner financing via a land contract/contract for deed, or via a master lease agreement. After a year you may be able to cash out the current owner. As far as getting 90-5-5 loan, you would have to check with lenders.