Posted by Carmen on March 08, 1999 at 16:16:29:

I was looking for conventional 70% financing. At a hard money lender’s rates, I may not be able to afford it. But I found that this only goes for 70% of contract amount, as you mentioned.

I would like to get cash out of at least one - I could wait for the other. I’ve found that I can get conventional 90% financing (probably) - and should be able to refinance at at least 70%.

With hard money, could I get the $46.8K (65% of 72,000), then get the seller to take a second for $10K, pay him $40K, and keep the $6.8K myself (assuming a price of $50K)? I’ve never done a hard money deal; not sure how this would work.


Posted by Carmen on March 07, 1999 at 08:48:15:

FIRST, THANK: Thanks to all of you responded re: the Condos. We’re still in negotiations on those - the owners don’t want me to have no equity in the property, but we’re meeting again in a few days to hammer something out - they’re talking seller financing, but only 5 years, with 12% interest, with “at least something down” - we’ll see. In any case, they are willing to “invest” in some of our other potential deals after we explained what we do, so even if we don’t get this condo, they are good contacts to have - private hard money lenders!

NOW - NEW DEAL! We have the possibility of purchasing 2 almost identical homes, in the same block, from a “tired and retired” landlord who also lives in the neighborhood, but is moving away. FMV = $75,000 according to tax rolls. The owner owns one home free and clear, has a $8,000 private note on the second. Asking: $55K. Both homes are occupied by tenants. Rent is $600/month. This is not a great area, but the homes look well kept. It may be section 8, because when we first called, and asked about the homes, they told us we would have to qualify “through the government” for financing? Anyone know about that? Well, we told them we had our own financing, so we’re talking tomorrow.

One tenant’s lease is up in April. We spoke to the gentleman, who happened to be out in his yard with his rottweiler and the neighbor’s pit bull when we drove by (he assured us they are friendly). He is unhappy because he will probably have to move. He was given first right of refusal to purchase the home, but he doesn’t think he can qualify.

Two questions - speaking to the current landlord, I foresee a potential problem when this gentleman moves, if he does. I’d like to try to lease option the home to him once we own it - as long as he can afford the monthly payments (I figured it at about $666/month for a $70K home at 10%). He’s been living in it for a while, and his in-laws and friends are in the neighborhood, so he seems motivated to stay. If he does not, I foresee damage to the home on his exit. How to prevent this, or what to put in the contract to make the current owner somewhat responsible? Wait to close until after the tenant moves/gets evicted, with right of inspection? Any other thoughts?

The second question is, I am fuzzy on how I could get cash out of these homes. The owner will likely take a second, if we can give him cash for a portion of his equity. If I get a 70% loan on FMV, that’s about $52,000. I’m thinking of offering $50K for each property, giving the owner $40K cash and asking him to take a second for the other $10K. Can I do this, and take my $12K out of each one? What will the lender look at, the FMV or the contract? Will a lender lend me more than I pay for the property? And how does the second mortgage then come in? How would I write this contract? I obviously don’t want the seller to know that I am doing this, they may feel taken advantage of. The logistics are confusing to me.

Any lenders out there, or creative people? I’m sure I’m missing something very simple here…

Re: NEW DEAL - CASH OUT QUESTION - Posted by Tim (Atlanta)

Posted by Tim (Atlanta) on March 08, 1999 at 12:39:57:

First, if you are concerned about the current tenant, make sure your contract states that the seller must remove the tenant before closing. Then inspect the property.

Are you thinking about getting the 70% loan from a hard money lender or a mortgage company ? The hard money or private lenders will not be concerned about how much you paid, only the FMV. If you use a mortgage company, they will only lend based on the sale price or FMV, whichever is less.

The contract need not state that you are getting a 52,000 loan from another source. The contract should state how you are going to satisfy the funds needed to close (40,000 hard money with 10,000 owner second). The seller will, however, see the new loan amount at closing. All of the amounts will be on the standard HUD-1 form the closing attorney will use. This would show that you are walking away with 12,000. Is taking that cash out now that important to you ? You could wait until the loan has seasoned and take the cash out next year with a new 70% loan. Who knows, maybe the property will appraise higher then.