How Can I Structure This One.....Or Should I ??? - Posted by Bill {V.F.}

Posted by Sean on April 21, 1999 at 09:23:37:

First of all, your better bet is to go after property 1 since it has more equity. Property 2 is already rented, so unless you plan to lease-option it for more than the guy is already taking in, or you’re going to make a large deposit it’s not going to begin to better the guy’s financial situation.

Secondly, you need to do a financial analysis on the property. The one where both units rent for $850 you’ve got $1700 monthly income less vacancy (maybe 10% depending on your area) so about $18,360 a year gross. Assume expenses of about 45% that means you’ll have a net operating income of about $10,100. That gives you a capitalization rate of about 5.3 percent. It would be silly to get a bank loan for 7 percent and invest that money at 5.3 percent that’s for sure.

So let’s deal with property 1. You say one unit is rented for $775 a month. Let’s say both could be rented for that amount, basically $16,740 annual income. If we still assume 45% costs we have $9,210 coming in a year to maintain your debt. Assuming you got a hard-money loan for 65% of the value of the property and paid 15% interest your interest payments a year would be $18,135 which is double what you’d be bringing in.

Unless you have maybe $15,000 to put down and good credit I wouldn’t bother going after either. Maybe your vacancy rate or expenses are lower and I’m just not familiar with your area. See if someone else gives you a better idea.

How Can I Structure This One…Or Should I ??? - Posted by Bill {V.F.}

Posted by Bill {V.F.} on April 21, 1999 at 07:01:08:

I would appreciate any and all input on this one…

Property owner is in foreclosure and is about at the end of his stays of execution. He built two duplexes; one in 1993 and one in 1995. They are right next to each other in a working class neighborhood and have been well maintained.

1993 Property: Two units each with 3br 1&1/2ba. FMV is $186,000. The owner lives in one and rents the other for $775/mo. Mtg. payment is $961/mo. Debt to the bank is $109,500 plus tax liens totaling $3,900; TOTAL…$113,300.

1995 Property: Two units each with 3br 2&1/2ba. FMV is $190,000. Both units rent for $850/mo. Unfortunately I do not have the mtg. payment number for this unit, but for the sake of our discussion let’s say it’s $1,100/mo. Debt to the bank is $142,600 plus tax liens totaling $9,500. TOTAL $152,100.

Additionally, there is a $30,000 second from the same lender which blankets both properties.

Summary: FMV for both properties is $376,000

Bank debt (incl. 2nd) is $282,100
Tax liens on both is 13,400

Total Debt $295,500

My initial thought was to try to do something involving only propetry II (the one where he does not live). That property has a total debt of $152,100 against a FMV of $190,000. I know the banker involved and I believe I can get him to remove the 2nd and have it remain only on property I. From what I can tell at this point, it would take about $18,500 to get him current with the bank and about $9,500 to take care of the tax issures on this property.

From what I have been reading on this board, it appears that there may be an opportunity for some tpye of L/O opportunity, but I’m not sure of quite what to do. Is there a ray of hope for putting something together here?

It’s great to have great minds to pick…thanks all!!!