Need Hard Money or Other Alternative - Posted by David W. Hall

Posted by Nate(DC) on February 05, 2002 at 13:59:38:

Sorry, I meant to say that a 75% LTV loan would be $900,000. However, that doesn’t change anything else about the post.


Need Hard Money or Other Alternative - Posted by David W. Hall

Posted by David W. Hall on February 05, 2002 at 09:41:09:

I have an owner who is willing to carry a note if I purchase his 31 unit, 1974, all 2br1ba apartment building for $1.2 million. That’s full asking price and it will appraise right at that price.

I can assume the existing loan no doc at $700,000. The owner needs $225,000 to recoup captial improvement expenditures over the last 2 years and an additional $100,000 cash profit. Everything else he will hold a note on.

My credit is crap so I need to get hard money on $300,000 with a payment no higher than $3000 per month until I can refi.

The existing payment is $5500 and the owner’s note will be $700 per month.

The apartments rent for an average of $557 per unit. Times 31, that is $17267 per month. These numbers come from profit and loss and rent roll actuals going back for a full year so actual vacancy is included.

Expenses per month after acquisition will run $5635 based on past performance and increases in insurance costs in Texas. This number is underwritten about $300 per month high as compared to past performance.

$17200-$5700=$11,500 net operating income

equals $2300 per month. If have to have at least $500 cash flow to make it worthwhile, so there is room.

The part that will make it work, to my level of understanding will be to get a $300,000 hard money loan at no more than 9% interest with no more than 1 point in a second position (owner will take third position).

I will refinance the property as soon as possible after I own it to pay back the hardmoney loan.

If any of you are hardmoney lenders and see this as a possibility, I could use the help. If you know someone who could help me to make this happen, I would appreciate it.\

I am also open to alternatives that I haven’t considered. Thanks in advance for the help.

Re: Need Hard Money or Other Alternative - Posted by Nate(DC)

Posted by Nate(DC) on February 05, 2002 at 13:58:35:

This is a perfect example of why the mere fact that an owner is willing to carry paper doesn’t make it into a deal worth doing.

I think Brent has pretty much laid out the facts for you. I can pretty much guarantee that you will not find a hard money lender to make a loan at 9% and 1 point, even in first position at a low LTV. This would be in a second position at a fairly high LTV. In addition, I can pretty much guarantee that you will not find a hard money lender to give a second mortgage, period.

How will you refinance in a short amount of time if the property value hasn’t gone up and your credit is still shot? Your basic refinance loan for a property of this type would go up to, say, 75% LTV, or $800,000, which isn’t even enough to pay off the hard money lender, and is barely enough to pay off the existing 1st.

I think you should pass and look for a more do-able deal.


Re: - Posted by Brent_IL

Posted by Brent_IL on February 05, 2002 at 12:56:17:

The folks on the commercial board will have better insight, and might be able to be of more help.

IMHO, under current HM conditions the scenario you have described is not feasible, and likely not possible. When making an offer to a motivated seller we ignore what they want, and give them what they need because that’s all we’re willing to do. You’re in a similar position as a motivated buyer; you may want and need a $300K loan, but that doesn’t mean anyone will be inclined to give it to you under the conditions you have outlined.

The HM lender would like a first position, or very well-secured second. The $700K + $300K loan of one million is a loan-to-value of ~ 83%. Commercial first lenders want to slow down at 70%. Hard money lenders, with LTV limits of 65%, often have interest terms of 15-18% with 0-10 up-front points, all due in one year, or less. What are you going to do in one year that would add the value you need to refinance?

I?d also investigate every income, expense, and vacancy claim of the seller. Lenders are conservative. A one-year vacancy rate might not be relevant.

Getting a new first at say, 75%, would entail substantial loan costs so that even with credits and prorations the seller winds up with about a third of the cash he wants.

The seller may have to wait several years to get all his money back if he wants to sell now.