Posted by Nate-WI on November 13, 2005 at 16:41:41:
Hi John,
Yes I am the same Nate from the MH forum. I love those lonnie deals and will keep doing those cause the yields are too good to pass up. With that said I’m entertaining at buying this duplex. I’m a newb when it comes to financing and what to look for in duplexes. My credit is 715 so that will help me with the rates…I hope anyways I’m not in a rush to get the equity out. My thoughts were to take that money and not only have money that I could use for that duplex i.e. fix-ups, dead rent, etc. but to also have the cash on hand for more lonnie deals. That probably sounds goofy doesn’t it? I crunched some numbers and they look like this.
Purchase price 85K
Concessions 5K
80% mortgage financed= $68,000 @ 7.5%
Seller second of $17,000 at zero interest, zero payments for a year. Rents are 920 a month.
Mortgage would be $475.47 plus taxes of $166.67, insurance of $30.00, equalling $672.14. Figure that would cashflow at $247.86. Now that’s with it rented and no major suprises. Yeah right…no suprises but this is a rough estimate. I wouldn’t be paying closing costs but I would have to pay them when I refinanced. If I pass on this place I will sleep like a rock but I still want to see what I’m up against. If nothing else I get to go the mailbox and collect the lonnie checks each month
Posted by Nate-WI on November 11, 2005 at 17:12:47:
Hey guys,
I gotta post this here cause I know I will hear the good and the bad, which is what I need. I’m looking to purchase a duplex here in Appleton, WI. Here is the skinny.
Sales price is $87,900.00
Upper rents for $425.00
Lower rents for $495.00
Appraisal done this year at 103,000.00
Taxes were $1714.00 last year (Say 2000.00 for 06’) City just did a tax assesment. Both levels are 3 bedroom, 1 bath. Utilities are split and the tenants pay for utilities. Comps are kinda hard to get since its a duplex. They came in the 85-90K range. Repairs needed…It needs a new roof, washer and dryer for the lower, some electric and duct work ran to get the washer and dryer on the first level and out of the damp basement. Really that’s about it for immediate repairs. The upper is rented for another 10 months. The lower is vacant. The current owner has not been advertising this at all. My thoughts are to go to the housing authority and maybe work to get a Section 8 tenant or simply start advertising it. There are a ton of 2 bdr rentals in the area but not to many 3 bdr. Here is what I offered…
Purchase price of $85,000.00
80% financed with seller carrying a second for 20% with zero interest, zero payments on a one year balloon.
Seller concessions of $5,000.00
Seller pays closing costs
My mortgage broker said for this deal, as structured above, I would be looking at a 7.5-7.75% interest rate for a NOO. The duplex is about 5 minutes from my home which is convenient. My goal for this property is to re-fi with no seasoning or maybe wait a year, then use a HELOC to buy more investments. I will be hanging onto this for at least 3-5 years. Appreciation is about 5-7% a year.
Posted by Ben Carmona on November 13, 2005 at 24:58:39:
Hi Nate,
What’s your middle credit score? The rate you were quoted, what type of a loan is this, how much in orgination, and I assume there is no prepay? Your consessions seem high. It sounds like this may be a nonconforming loan.
If it appraised at $103,000 now and you say 5% appreciation minimum, then in 1 year it would be at an estimated at $108K. Taking cash out immediately may be an option if your scores are high enough. However, 90% would only get you a loan of $93K. This would barely be enough to pay off your purchase loan.
Have you spoke to your broker about the terms of the seller 2nd. Some lenders have mandatory terms for these.
Posted by Nate-WI on November 13, 2005 at 07:20:40:
My median score is a 715. This is a two yr arm with no pre-pay at 7.75% interest rate. Maybe I should go into a interest only option arm for a year??? The seller concessions (The 5K) would pay for my closing costs and the difference I would pocket at closing with full lender disclosure to avoid any loan fraud. The seller second is fine with the broker and he doesn’t mind what terms are agreed upon with me and the seller. It will be a 100% CLTV loan though so the rate might be a little higher plus its a NOO loan. The update is that the seller refused my first bid. My terms on the second were no interest, no payments with a one year balloon which he thought was fine. Just need to bump up my price or lessen my concessions. I told him good luck with the property. He has one vacany, snow is about to fly, but he’s a motivated seller. Sure he is.
Posted by Ben Carmona on November 13, 2005 at 12:55:02:
Hi Nate,
Great credit. That will get you along way with your future investments.
Interesting that you’re getting cash back from the seller credit of closing costs. I am not familiar with lenders that do this except for a few which offer 105% or 107% loans.
I am trying to play this scenario through but am not clear on a couple things. First off, it seems that you are expecting to refinance this loan off in the first year or two. At that point you your ltv may not be far off from where you are now. Would it be better to just get 100% financing from a lender? Possibly a 30 year mortgage on the first with a lower rate than what was currently offered. The 2nd would be in the double digits but your going to run into that same sitaution when you go to refinance the loan. Closing costs for only 1 transaction and who knows where rates will be in a year or 2. The only thing with these loans is that the seller concessions is limited to 2%; that could fit in perfect with what the seller needs.
Posted by Nate-WI on November 13, 2005 at 14:25:27:
Good points. Thanks for the comments. I will ask about those rates as well cause this should be a restidential loan and not a commercial loan. Maybe cause its at a 100% CLTV with the seller second? I wonder if it would make sense to do a 100% on this right out of the gate. Maybe a 5 yr arm and do a cash-out refi with no seasoning and still get a decent rate. If I buy it for 85K minus the 5K concessions I wonder what I would be looking at for rates for a 3 or 5 yr arm. Can I do those types of loans and do a non seasoned cash out re-fi?
Posted by John Corey on November 13, 2005 at 15:21:56:
Nate,
Are you the same Nate on the MH forum?
Skip the label of commercial vs. residential. If the property is a 1 to 4 unit residential property then for most conversations it will always be considered residential. Commercial will normally be saved for buildings greater than 4 units (5 or more) and buildings with businesses.
The rate in this deal is driven by your credit, the fact that it is NOO and the LTV/deal structure. Some other special factors could pop up if there are issues about conforming use, etc. Focus on the things Ben is raising as that is really what is going to make a difference.
Side note - Cash back at purchase or a cash out refi with no seasoning pushes you into higher risk categories. Hence the rates go up or the fees are higher or both.
Other than you want to do more deals why be in such a rush to pull out cash? If you can do a deal with a new 80% first and a 20% seller carry back then you can do deals all day if the cash flow stacks up.
Remember that your credit score will drop or you will have issues with the DTI if the income from the building is less than 1.25% (rough approximation) of the mortgage amount. Most lenders want to know that the building can cover all the running costs or they start to deduct from your income the shortage.
I’m not in a rush to get the equity out. My thoughts were to take that money and not only have money that I could use for that duplex i.e. fix-ups, dead rent, etc. but to also have the cash on hand for more lonnie deals. That probably sounds goofy doesn’t it? I crunched some numbers and they look like this.