Clearing up debt-which way to go - Posted by Al Nagy

Posted by John - CA on June 10, 2002 at 13:03:12:


All things being equal - the abiltiy to service all of your debt whether you pay off some or not, I would let your mortgage guy help you decide what to pay, if anything. He is, after all, the guy who knows what it will take to get you into the loan. Sometimes it is better to pay off revolving debt, other times it is better to pay down installment loans (generally, any installment loan with ten months or less remaining will not be counted against your debt ratio). But you would hate to pay one thing and have the loan guy tell you that had you paid the other I could give you the loan.

I’ve found it to be fairly commonplace for a seller to request some sort of “proof” of funding before releasing P&L info. Think from the other side, as the seller. If someone you had never met before asked to see your financials, offer or no offer (ANYONE can make an offer), would you hand over the info? If yes, then I think you’re in the minority. I would want to make sure that person could close the deal. After all, the purchase agreement will have plenty of exits written into it if you aren’t happy with the expenses once you’ve seen them.

As for the two bedroom versus one bedroom thing, it has been my experience that one bedrooms are a little tougher to rent, but once rented they stay that way for a while. Bachelor(ette)'s don’t like to move. Two bedroom units always move quicker. I’ve only purchased one bedroom units when they were fully occupied. But I tend to just shy away from them entirely since they are a bit tougher to liquidate.

Good luck-


Clearing up debt-which way to go - Posted by Al Nagy

Posted by Al Nagy on June 03, 2002 at 05:48:53:

Hi Folks,
What a great site! I’ve been on for about a month and never learned as much in any classroom.
Now, for another question.
My FICO is 611; Experian is around 650. No T.U. score.
Question: I have about $18K in unsecured debt; about 85% equity in my home, shared with my fiancee. That’s about $20K.
Have been considering either a HELOC or equity loan to pay off the debt, thereby improving my credit picture.
I have an apartment complex in mind, 40 units.
Would the non secured debt elimination be a wiser use of any loan amount, or would a portion best be used for my earnest money deposit of $5K, balance for most of the aforementioned debt, with $3-4K in reserve? I have also considered offering a note for $5K deposit secured by deposits and all other prepaid monies held by seller. Should be about $20K there.
Seller will carry paper for about 15% of sale price, other financing (help again!) to carry the rest. FMV $1M, my offer of $940K accepted. Gross income-$210K; NOI-$100K.
I will not be working for 6 or 7 weeks due to health reasons, so my income will be limited during that time.
Opinions from you pro’s is solicited.

Re: Clearing up debt-which way to go - Posted by John - CA

Posted by John - CA on June 07, 2002 at 10:08:46:

IMHO, since you will be securing commercial financing for the complex, I wouldn’t pay down any personal debt (unless you needed to to make ends meet) since the loan should be based on the property’s ability to service the debt, not your personal credit. Besides, you’ll need all the cash you can get your hands on.

Good luck.

Re: Clearing up debt-which way to go - Posted by Al Nagy

Posted by Al Nagy on June 08, 2002 at 04:15:07:

Thanks John. I was considering the impact on my credit more in terms of smaller SFR-4 unit properties.
I am getting mixed signals on the apartments. The owner won’t provide income data without a commitment to me by a lender.
I toured the facility yesterday. Mostly older folks, as the units are mainly 1 bedroom. There were 5 vacancies and the manager told me two units had just become vacant.
There is a waiting list for 2 bedroom apts., but there are only 7 available for rental. This leads me to believe the one bedroom units may be somewhat of a challenge to fill.
I would expect the seller to share the I & E data with me regardless of the financing arrangements.
Thanks again,