Posted by Steve (OH) on January 31, 2001 at 12:21:24:
Thanks for the response, Ed. I will give you a call tonight.
Quick clarification: by 80/20, I meant not taking the owner up on his carry-back…in other words getting a first and second immediately on both properties. PMI on this??
Thanks again.
Help from Ed/others, please! - Posted by Steve (OH)
Posted by Steve (OH) on January 31, 2001 at 10:04:10:
I posted this scenario below and didn’t get any input…I just posted it yesterday, but need to get back with the agent because this property is not yet listed. Can I get some input? Thanks.
Hello all. I need some help in structuring the purchase of two duplexes for buy/hold near a large university campus. Here’s the skinny:
Asking 200k each. Seller has agreed to carry 10% back, but it is at 11% the first year, 12% next, etc. until a baloon is due at year 5. 2nd is amortized 30 yrs.
I am trying to minimize my out of pocket downpayment etc. (as we all are) and am therefore (I have strong credit, good debt to income, etc.), looking at structuring the financing in an “80/20” fashion as well. 1st at 8% and 2nd at 11%.
Gross income is 1250/unit which equals 5000 total (good rents in my opinion…each side is FIVE bedrooms!). Taxes are currently 200/month (both buildings), but would go up with new sales price (owner bought both for 125k/each in 1989). PMI (if I did 80/20) would be approx 200/month (which SUCKS!..but it is the cost of doing biz).
Appreciation rate in this area has been at/about 8%/year the past 5 or so years.
I am thinking of closing on the 1st of the month and therefore getting 5000 in security deposits, 5000 for that month’s rent and another 5000 in the next month’s rent prior to my mortgage being due on the 15th of the third month.
The reason I am wanting to minimize my out of pocket is because I want to do some cash buys this year, but want to buy good solid cashflow properties in the meantime.
The 100% leveraged property concept kind of scares me, but this one is in a good area so should appreciate well.
Re: Help from Ed/others, please! - Posted by Ed Garcia
Posted by Ed Garcia on January 31, 2001 at 11:31:55:
Steve,
My suggestion is for you to call me at (9090 944-0199 and we can discuss your deal. First of all you wouldn’t need PMI if you structured your deal as an 80/20. The reason being is, PMI insures the difference the lender carries over 80%.
Secondly, when you state, “The 100% leveraged property concept kind of scares me, but this one is in a good area so should appreciate well”. It shouldn’t, because you’re in it basically nothing, and if you have any kind of deal it should debt service with a positive cash flow. I would need you to come in with 5% down + closing cost of your own money on each building in order for me to do it, even with your 10% seller carry-back. When you go out in the market place, I think you’ll find that to be “Real World”.
For the fun of it lets look at your deal.
1st Mortgage $340,000 at 8% if you can get it, the payment is $2,496.
2nd of $40,000 at 11% interest only, the payment is $367, not counting annual accelerations.
Total annual out go would be not counting expenses $2,863. X 12 months = $34,356
A lender would hit both buildings with 25% vacancy and expenses minimum. That’s
$15,000 annually. $34,356 + $15,000 = $49,456. So yes, there is a deal here.
Ed Garcia