ED, need advice on big loan - Posted by Pat P.

Posted by PatP on February 25, 2002 at 12:41:00:

The first on the property is for 1.5 million. The short sale(s) would be w/ the 2nd, 3rd and 4th positions.

The substition of collateral (maby wrong term)is w/ the IRS income tax lien- $350,000. I have had success getting this off property (left on individual)when the ownership changed hands.

As far ad my finicial position, very good credit but dont have the income or resorces for the capital needed here.

Also, no one lives in house. It is a furnished vacation home.

ED, need advice on big loan - Posted by Pat P.

Posted by Pat P. on February 24, 2002 at 20:25:21:

Ed before i start I just want to say because of your expertise,that this is an awsome site for info. Thank you.
I would appreciate any advice on the following. Home in pre-forclosure going to sale in march. 2.5 mil loan(s),leans on property. FMV= 4.5-5.0 mil. Owner will deed over house if I can come up w/loan (2.5mil), stop forclosure. He wants then to have 50/50 split on equity when resold. Any thoughts??
Thank you PatP.

Re: ED, need advice on big loan - Posted by Ed Garcia

Posted by Ed Garcia on February 25, 2002 at 02:46:56:


You don’t tell us where you and the property are located.

I can tell you this right now, this is a deal with TALL NUMBERS and because of that it’s going to be hard to find someone to dance.

Pat I can see you salivating that you’re going to make a couple million bucks.

Exciting isn’t it. By the way, how do you plan to debt service a 2.5 million dollar loan?

If you qualify, which by the way you’ve written your post, I don’t think that you do, at 8% you will have a monthly payment of approximately $18,500 per month.

If you could go hard money, it would cost 10 points and 14%. Even if your payment were interest only, your payments would be $32,600 per month.

How much thought have you put into this deal Pat. Being from California, I’ve financed properties such as this. I’m going to tell you right now, it’s not easy finding a qualified buyer.

You say the owner will deed over the property to you if you come up with a loan for 2.5 million and then wants to split the deal with you.

Tell the owner to close his shirt his heart’s falling out. If you were to come up with 2.5 million, you would be saving the deal as well as the owner from a foreclosure. As a matter of fact if you could come up with 2.5 million, you could more than likely purchase it from the existing lender.

Houses in this price range take time to market. Don’t tell me that it will sell over night, because if that were true the seller wouldn’t be talking to you.

The average time for a house in that price range in California is 6 months to a year or longer.

Are you prepared to debt service the house for a year? That will be $391,000 per year.

You could go to the existing lender and ask them if you could assume the existing loan because it’s in default and the borrower is willing to sign the property over to you. Again you would have to show the ability to pay.

Pat, I’m sorry, but I think you’re biting off more than you can chew. I think what you have here is a dream with no game plan.

If you can’t sell it in a timely manner your going to say, gee I thought for sure I could sell it. Oh well I guess you’ll just have to take the house back.

Pat, even if I showed how to structure the deal, I don’t think you could debt service the loan. Don’t tell me let me guess, lets do a moratorium on the payments. Sorry, but because of the size of the deal most investors or lenders wouldn’t feel comfortable doing that with an unqualified borrower.

Pat because it’s a sizable deal most investors and lenders are going to look at this deal a little harder than they would a deal that’s more marketable or affordable.

My suggestion is to find another deal and don’t look back,

Ed Garcia

Re: ED, need advice on big loan - Posted by PatP

Posted by PatP on February 25, 2002 at 09:12:14:

Thank you for your responce and your candidness.

I think the simplicity of my original e-mail may have painted an un-clear picture.

First I would like to say that I do not think that I will make 2 million bucks on this deal or any thing close to it. I will admit that I am certainly not a real estate guru by any stretch of the imagination, a jr investor at best. Also, if I were to attack this deal solo and w/out a plan, I would be biting off more than I could chew.

With all that said, I do have a plan and have researched this is great debth.

Location of house: Historic Main st in Nantucket Mass. The house is in a very very desirable area with a extreamly low turn over rate.(these never become available, most have been in the same families for years)

FMV 4.5-5 million baced on 2 current court ordered appraisals. The house is currently listed for 4.9 million. Low ball offers only so far ( around 3 million) Everbody in area that has intrest knows house in going to sale in march.
I contacted all the agents that have shown property in past 4 weeks and they all say the same thing. Buyers want to take there chance at the forclosure auction to possibly get a deal.

Between the agreed apon discounts and sustitution of collateral, Aprox 2.0- 2.1 million would be needed to satisfiy the 2.5 million owed.
I addition, property can be rented over late june, july and aug at$20,000/week to help cash flow as needed. (has rental history from managment co to back this up)

My plan was to hand this off to a investor capable of such a project and making a small fee for doing so.
Sorry for the long winded follow up. PatP

Re: ED, need advice on big loan - Posted by Ed Garcia

Posted by Ed Garcia on February 25, 2002 at 10:30:56:


Thank you for giving me a little clearer picture. Your second post seems a little more realistic then your first.

Pat, TIMING is always a crucial part of a deal like this. I’m back to debt service. You’ve have mentioned renting it for $20,000 per week. Sounds good but I can’t buy it because I know anyone who would consider paying such rents would want lavished furnishings etc.

Pat I realize that I don’t have all of the information and it looks like I’m second guessing, which I am, but I’m right more than wrong.

For starters, if I Ed Garcia were to do this deal, I would cure the first. It’s the fastest, easiest way to take over the deal. I would tell the seller that the day they are out of the property, I will fire a check to cure the first. It more than likely would be easier to borrow a few hundred thousand in second position from a Hard Money lender then it would to try and get someone to re-fi a new first for 2.5 mil.

Since you’re considering partnering up with the seller on profits that you will make if they work with you, you could have them ad you to the deal in order to borrow in second position. You mention a substitution of collateral and discounting the first to 2.0 or 2.1 mil, but give us no reference of what you are talking about. Apparently you’ve have already been talking to the first mortgage holder and are trying to be creative with another property.

Again when you talk about agreed upon discounts making it appear that the lender is doing a short sale you’ve lost me Pat, because it’s not customary for a lender to have so much equity as you have presented and take a short sale. I need you to clarify that for me.

I’ll tell you what. I’ll be in my office all day today except for lunch. Call me at (909) 944-0199 after 10: 30 a.m. California time and we can talk about your deal. With more information I may be able to help you. Remember you haven’t in either of your post mentioned your financial ability.

Ed Garcia