math-challenged artgirl needs help - Posted by Artgirl(IL)
Posted by Artgirl(IL) on January 29, 2002 at 07:29:07:
After a few weeks of much hunting and rejecting, I put my first bid on a property yesterday and am now scrambling to get my financial duckies in a row. I need some help thinking unconventionally about mortgages.
The property is a 4flat in decent condition (needs some cosmetics which can be done gradually as current tenants exit) in a good, stable, residential neighborhood. It is now fully rented and has not had any vacancies at all for the past 8 yrs. according to the current owner.
With a 10% down loan I can easily get an 8.5% mortgage for the other 90% but obviously I want to and believe I can do better. I also believe (but have not proven to the bank) that I can rent out the huge empty basement as artist’s spaces to improve cash flow in this underutilized available space.
I am thinking about putting down 10% from personal cash reserves, getting an equity line of credit for 10% and get a 30 yr. fixed for the other 80%. Then the interest rate would be about 7.75% and according to this scenario after PITI and the other monthly expenses I will be at a break even cash flow (from current rents of the 4 residential units-not counting art studio potential) but almost no cushion. Now if I can get that interest rate down I can get some cash flow immediately from the residential units.
Some strikes against me: I will not be occupying this building myself, I’m incorporated, self-employed and have a good business but show low personal income. I’m a first-time landlord. The brokers want to give me a “no doc loan” which creeps up the interest rate.
Positives: I have squeaky clean credit and a very small amount of debt-a student loan payment for $140 per month which is current and will evaporate in less than one year. I have a good deal of equity in my house amounting to about 30 percent of the building I want to buy.
How can I minimize the negatives and capitalize on my positives to get the best possible interest rates with the least amount of risk? ARM’s scare me-maybe because I don’t know how to use one. I can also get a personal term loan with a 10 yr. balloon from a relative but according to the bank a personal loan like this can kill the whole mortgage deal for me with the bank.
If I get the home equity line of credit, would it be better to get it from a separate lender other than the first mortgage lender? Some of these lenders want to bundle everything together. It doesn’t look like I would benefit from that. Wrapping my current mortgage into this deal seems like a huge risk.
All wise words welcomed.