What do I do, Ed? - Posted by Scott M.
Posted by Scott M. on March 15, 2001 at 20:30:52:
I recently pursued financing on a triplex. I was to put 10% down and the seller was to assist with closing costs. Before I even found this deal, I went to a mortgage broker to supply my financial information. Because I am planning to invest in many real estate properties, I was told that this would be a great first step. I was told by my mortgage broker that I shouldn’t have any trouble getting approval for a loan up to $100,000. Anything greater would likely depend upon the deal itself. I was very pleased and began my search for my first investment property.
Here is what happened. I started calling about properties and in the process, I hooked up with a Realtor here in central Virginia who has been investing in real estate since the early 70s. He is also familiar with creatively structured deals. It turns out that he had a client who was a motivated seller with a triplex and she was willing to look at creative offers.
Here are some of the stats for the purchase agreement that she accepted:
Purchase Price: $74,000
Down Payment: $7,400
Mortgage Amount: $66,600
I want to note that the seller agreed to provide us with a capital improvement allowance check of $7,400 at closing. The three apartments in the triplex were being rented for $265, $350 and $450 per month. As we began the process of actually finding a lender through our broker, we were totally expecting no problems at all because the good status of my credit as told by my mortgage broker. We found a lender who agreed to work with us and each party began taking the appropriate steps. According to our good faith estimate, our monthly mortgage payments would have been about $614.60. This would have left us $450.40 after our mortgage payment. Since we would only have a small water payment every two months, we would clearly have a positive cash flow with room for occasional general expenses, etc.
We got down to the final two weeks (after many delays) and the lender BACKED OUT!!! They said they didn’t feel comfortable with the amount of cash we would have left in our bank account after closing which would have been about $600. But, due to the credit (capital improvement allowance) and renters deposits, etc., the amount would have gone up by thousands of dollars that very day. How can such a good and solid deal fall apart like that?
We ended up going to GMAC Mortgage and in addition to the down payment and closing costs, they also required that we had a reserve of six months worth or mortgage payments put aside so that in the event I lost my job I could still pay them. As if that wasn’t enough, I was also told that recent inquiries into my credit report has caused my credit score to drop a little and that would hurt my chances of obtaining financing through them. Well, I was not surprised that GMAC Mortgage passed on the financing. Sadly, my first investment deal fell through.
How I went from being able to obtain financing for anything up to $100,000 to struggling to close on a $66,600 mortgage on a triplex with a positive cash flow is truly befuddling! Right now, all around me, there are so many deals that I can literally pick and choose. It’s a hot morket for investment buyers. I looked at 2 fourplexes two weeks ago. I walked through 2 duplexes in excellent condition last weekend. Yesterday, I drove by 2 duplexes and 2 fourplexes being sold by a man retiring from landlording. He has them much under value and will also assist in closing costs as well as possibly some financing. And this is only a partial list. I’ve heard stories on this board of people purchasing several (or many more) properties in a year with only decent credit. How?? Plus, what happens when I apply for another loan if each time my credit score will drop every time someone looks at my credit report?
I don’t want to give up so I’m making an offer on 2 duplexes on Monday. But what do I do now? Last week I was a serious player. Today, I’m wondering how in the world I can even get financing for a treehouse, let alone the 2 duplexes. How can I be so close, yet so far? I know I am not a credit risk at all. I’m very solid with my finances and always pay on time. Sure, I hit a few bumps years ago but nothing recent. So how in the world does a person get financing? Am I wasting my time making an offer on the 2 duplexes (or anything else for that matter)? Any suggestions would be tremendously appreciated!