Duplex Funding/Financing - Posted by Catherine

Posted by Ed Garcia on March 07, 2002 at 11:00:03:


Without more information, I’m unable to tell you the value of this acquisition.

Since you main objective is to discuss the cash flow having $2100 debt service the property purchased for $340,000 I’m afraid that the numbers won’t work.

If you could average a first mortgage and seller carry-back second at 7% your payment would be $2261. An estimate on the taxes using 1.25 California taxes so there can be an adjustment there to what you state requires would be $$4250, insurance approx $500 totaling $4750. If tax and insurance were added to the payment, the payment would then be $2657.

Catherine, this is if you could get 7% financing on the deal. Not counting if you have to pay PMI and not counting for any expenses. If you should have a vacancy for any period of time you would be in a world of hurt.

On the other hand according to you, it may be difficult for you to duplicate your living in that area for only $700 per month. If you decide to pay more rent that also opens up opportunity to live in other buildings that may be even more desirable.

I think the first thing you should do is grind on the price. You and the owner have been kicking this around for some time and I feel that the owner will work with you first before going to the street.

Here’s a suggestion of how to work the owner.

First, find every little problem with the building you can find and point out the differed maintenance. Whatever number you come up with, that should come off of the asking price. The reason is, a building that gets top dollar, should be in top condition.

Second, you tell them that with an asking price $340,000 There going to get offers of $290k, $300k, $310k, maybe $325k, so you’ll give them something in the middle. You’ll give them $315k minus lets say $5000 in differed maintenance, would now give you a sales price of $310k. You then explain to the seller that if they sold it for $310 they would have to pay a commission of at least 6% which on $310,000 is $18,600.

Sales Price $310,000 taking off the commission of $18,600 leaves you a sale price of $291,400. This is an estimate of what the seller will get if they go through a broker and you will pay the same. Now you ask for a seller carry-back of 15%, which is $43,710 and ask them to carry it at 7% as long as you can get. Try 30 years, why not, I’m on a roll and if you don’t ask, you won’t get.

Now you mentioned putting down $10k to $15k. Now there is a good chance you can do 100% financing but again to get the payments where you want them lets say you put down 5% which is $14,570.
Here’s where we are.

New first mortgage of 80%, which is $233,120. The reason I did 80% is so you wouldn’t have to pay PMI mortgage insurance. The payment at still 7% is $1,550.

The second mortgage that the seller carried of $43,710 at also 7% will have a payment with a 30-year amortization of $291.

Estimated taxes on $291,400 is $3642 + $500 ins.= $4142. dividing the T&I into 12 months that would be approx $345.

Monthly payment on first including PITI will be $1895

Monthly payment on the second will be $291.

Total monthly payments would be $2186, pretty darn close to what you wanted.

Catherine, There is reality in the way I’ve worked up this deal. I certainly hope that it helps you.

Ed Garcia

Duplex Funding/Financing - Posted by Catherine

Posted by Catherine on March 07, 2002 at 08:01:56:

I want to purchase the duplex that I live in and want to discuss financing options. My main objective is to keep the monthly payments low. I live in Minneapolis and this property is in one of the most desireable neighborhoods. Here are some figures:

Purchase Price = $340,000
Current rents= $1,700 (this is total…they pay $1,000 upstairs and I pay $700)
Taxes= $3,300 (approx)
Units are 2BR/1BA, both have Fireplaces and back porches, 2 car garage, hardwood floors
The rents are below market…most go for $1,295-$1,595 per unit
The place needs work…old kitchens, old wiring, old furnaces
The owner has owned this property for 20+ years.

The owner knows that I want to buy the property and we have been half-heartedly negotiating for the past couple of years…this was before I knew anything about investing in real estate creatively…and I still don’t know much! He was slightly open to discussing financing options; however I did mention lease/option about a year ago (not knowing
what it really was or how to structure it) and he balked at that and then said I should just go get a mortgage. So, I don’t know how flexible he is now, a year later.

My credit score is 740 or 760. As I said above, I want to keep the monthly payments low - no more than $2,100, if possible. I could come up with $10K - $15K and if I absolutely had to I could scratch together 10%. Are there any financing options open to me that would keep my monthly payments in my desired range?

Also, I’ve just closed on my first deal… a rehab that is moving along swimmingly and my sincere THANKS to this forum for the ideas, inspiration and MOTIVATION that I found here! I hope to share my success story soon.


Re: Duplex Funding/Financing - Posted by jonH

Posted by jonH on March 12, 2002 at 01:23:17:

You are out of FHA range which lets you buy up to a foreplex with 3% down up to 265,000?. It sounds like a bad investment cash flow wise and when you sell the Building 1/2 the profit will be hit with capital gain tax…
I do not know your area and maybe you could make a killing reselling this in a couple of years???
Personally I own a Duplex in a small logging town in Washington state and it is worth 65,000 and it brings in 950 a month.
You might ask him to carry a contract. He would make more then if he kept it and rented it. If he needed cash, have him co-sign a loan with a agreement giving him the property back if you fall…say…60 days behind in payments, he gets cash, you get property. Best of luck…