Randy SD, gk MO, Micheala, and David Alexander - Posted by Raphael
Posted by Raphael on January 12, 2004 at 14:29:43:
Thank you Randy SD, gk MO, Micheala, and David Alexander for your input.
I have summarized all your points as follows:
Do not pay full price. Get a discount. Make money now. Do not bet on future appreciation.
5% interesst rate on the second mortgage may be good, but you could get an even lower rate than that.
10 years while not being that bad, perhaps you can negotiate not to maake any payments for the first 2 or 3 years.
CASH AT CLOSING
The cash you pay seller at closing should be enough for seller to pay off any remaining mortgage on the property, and also enough to pay broker commission, and of course closing costs.
In light of these wonderful observations, I have decided to modify my offer as follows. (By the way, this is a buy and hold. I intend to hold for at least 5 years, perhaps up to 10 years).Anyway I will modify my offer as follows:
PRICE: Note that the price is typical and normal for the area in question. But I will make an offer for $230K.
IST LIEN: Owner has about $15K left on the mortgage, Owner also has to pay his Broker commission. Owner also has to pay his own closing costs. So I will offer to take a Ist Lien for $60K (This is the LEAST amount my mortgage company will lend). So $60K will be payable to seller at the closing table.
I will ask seller to hold a 2ND lien for $170K.I will still go for a 10 year interest only loan, but:
a. I will ask for a lower interest rate. I will ask for 3% interest rate for those 10 years.
b. I will ask for the interest to ACCRUE for the first 3 years. This means I will not have to pay back any principal or interest for those first 3 years, although the interest for those three years will accrue, and add onto the $170K (amount of the 2ND lien).
c. At the end of the 3rd year , I begin to make the 3% interest only payments for the next 7 years.
d. At the end of the 10 years I pay seller his balance which $170K plus $15,300 (the interest that accrued for the first 3 years)
The idea is that if I can get the property for $230, I would have gotten it at a discount. Also if i can get the seller to hold the second at a 3% interest rate, I would have rented his money for lower than I could have rented from a bank. Additionally I get a 3 year no monthly payment holiday which I cannot get from a bank either. Plus I get an interest-only loan which reduces monthly payments.
Finally the idea is to refinance after about 5 years or so.
Thanks for reading this far. But what do you think now ?