Re: Apartment financincing - Posted by Ed Garcia
Posted by Ed Garcia on October 05, 2000 at 02:31:31:
First of all, I’d like to thank you for making your post. It’s a perfect example of why were here. It’s a typical example of how important what we teach really is. It goes to show you how sometimes what we teach is not just creative, but plain circumventing the system.
You see lenders make up these rules of lending called, lending policies or lending criteria. Now these rules are made up to protect the lender, however indirectly, they protect the investor or borrower as well. So, I don’t want you to think for a minute that I don’t respect these rules, it’s just that I know that they’re are not always applicable and in some cases make no sense at all.
Example: Most lenders will make a loan based on appraised value, or purchase price, which is ever lower. If you ask the average loan officer or banker, why? The typical answer is, because if it is worth X amount of dollars, then why did you pay only X amount of dollars for it. Now tell me, what kind of answer is that. The truth of the matter is that the value is based on the market, which means, what the majority of buyers will pay for the property. If someone had a opportunity to purchase a property below that value, they shouldn’t be penalized, but rewarded with ad on value.
My job is not to teach you how to circumvent the system illegally, or how to get yourself into trouble, but to show you how curtain rules, can be bent or worked around, or how to structure your deal to make it financable.
After saying that, lets look at your deal. Although, lenders want us to be honest with them, they are not always honest with us. Jed, I don’t know you, but I’m willing to bet that these units are in Long Beach or a similar area. Now lenders are not suppose to red line, which means, make a loan different in one area, then they would in another., but they do. When in comes to units, many lender are extremely picky as to condition, LOCATION, your experience or track record as far as owning or managing multiple units, and the strength of the borrower.
Now let me ask you? How exciting is the deal, if it’s in a ruff area, with a buyer who has never owned or operated this type of property before, and with a buyer who has nothing in the deal. Jed, I don’t have any financial information on you, to know how strong of a borrower you are. But to read your post and see your comments, I can see why a lender would not consider you experienced enough, or solid enough, to do a deal in an area that is less than desirable. By the way, the hard money loan you said you didn’t want, is cheap, I think you’re being set up for a bump.
But the truth of the matter is, it all boils down to, how good is the deal, how strong is the borrower, how hungry is the lender. You can usually make a deal with any of the 2 out of 3.
I can’t see where it would hurt for you to call me; you have nothing to lose and everything to gain. If you want an answer based on what you’ve said in your post. Then I would say take the hard money loan if the deal pencils out. Based on your post, I’m not sure you know how to pencil this deal. I was born in Glendale California, which is a suburb of Los Angeles and in Los Angeles County. When you say that you can buy 10 units, for 330 K in Los Angeles, I automatically knew something wasn’t right. Then when you continue to say The owner has just done a rehab and will carry paper on top of that, again automatically, I know your in a depressed area. You never gave the rents, unit mix, expenses, or how you came to you figures. But I can tell you’re a fish out of water.
If you like, you can call me at (909) 944-0199 and I’d be glad to look at your deal to finance it for you, or just go over it with you, to help you structure it. But I won’t kid you Jed, you’re not an easy deal. By the way, this same deal that we’ve been talking about could be financed at 100% if it were in another area, with a qualified buyer, and some who knew how to work the lender. If you ask most banks or savings and loans, how much they want down, they’ll tell you, 30%, but that they might get you down with 20%.
A big lender, for this kind of product in the L. A. area, is World Savings. But the first thing that they’ll want to do, is drive the property.