The owner would be willing to finance $29k and I would assume the first mortage of $46k. Or he would be willing to do a wrap-around mortgage for the whole $75k.The first mortgage has about 11 years left on it payments are $700 interest rate is 10%.Whether I have him give a 2nd mortgage or wrap-around he will keep the interest rate at 10 percent.
Here is the thing he is 72 and retiring and stuck on the total payment being $1350 a month(including taxes and insurance)leaving me with $400 positive cash flow.That would mean if I did a 2nd mortgage for the 29k the second mortgage would be a five year loan. Or if I did a wraparound at 75k at 10% the whole property would be paid off in 7 years. I plan on doing some cosmetic work and raising rents but I still feel I need more room for vacancies.
Any suggestions on the best route to make this deal work? Should I just try to refinance down the road which if I did 30yr mortgage would give me $1000 month profitw every month.Keep in mind this is a no money down deal!!!
I just found a 6 unit property which the owner is requesting $75k. The owner is retiring and just looking to get out. There are (4) 2 bedroom units (1) 3 bedroom and (1) efficiency. Grossing a little over $1800. Only 3 units are currently rented for now.The property with just a little of paint could easily fetch $120k. The mortgage on the property is $46k. He will finance the other $29k minus my deposit(not sure how much of a deposit I’m going to offer but it wont be more than $5k). Here is the tricky part he set up a corporation to purchase the property,when he purchased the property ten years. He offered to turn over the company itself which has the property as it only holding. Thus giving me the property and therefore assuming the loan. No qualifying and avoiding closing cost. Of course I will have a lawyer look into it to make sure the corporation doesnt have any other liabilities I dont know about.
Any suggestions on getting this deal done or maybe a better way to work it.
Re: Deal of a lifetime!!! - Posted by Tim_Cleveland
Posted by Tim_Cleveland on July 16, 2000 at 21:16:24:
Robin:
BE CAREFUL WHEN BUYING A CORPORATION! If you buy the corporation as mentioned you are not only buying the assets of the corporation, but you may also be buying liabilities whether they are known or unknown unless you write your contract or purchase and sale agreement very carefully.
For instance, you might ask if the corporation is being sued over anything? Has there been an accident that is in or may go into litigation that you will be buying when you buy the corporation? Are there any environmental concerns at the property such as an old underground storage tank which you will be made responsible for? Does the current Corporation, its owners, Directors, officers or employees know of anything that might give rise to a lawsuit? There should be certain “Representations and Warranties” that the seller should make assuring you of nothign like this outstanding.
Your hunch is correct in this situation, get a lawyer involved. Make sure that your agreement spells out which assets and liabilities you are buying. Make sure there is a hold harmless agreement that stipulates that the former owner will indmenify you and hold you harmless for anything that happened before you took over the company. You might even ask or require that former owner buy and show proof of his purchasing “run-off” or “Tail” coverage on his liability insurance to cover anything that may sneak up on you and ask if you can be named an additional insured.
Some thoughts from an insurance underwriter that has seen unfortunate incidents of a purchaser of a company ending up with more than they bargained for.
Actually , Bill Bronchick I believe gives some good advice on buying a corporation just for the purposes that Robin had explained.
In buying the corporation you dont have to qualify for any new loan, any hoops or what not.
I am curious as to why you say not to buy a corp. People do it everyday.
It is a nice little asset protection tool, and if he/she does his/her due diligence and makes sure there arent any problems that can bite them in the backside later and has her/his attorney scrutinize the deal, it sounds like a pretty good way to do this deal.
Can I acquire the corp assets(apartment building)while still avoiding closing cost. How then do I assume the mortgage on the property. I dont know if it is assumable otherwise…
I respect Mr. Bronchick greatly and I am sure he knows what he is talking about on this. This being said, it is much easier getting burned in buying a corporation.
I would gather up the Articles of Corporation, the companies Minutes, D&B Report, Public Records, Certificate of Good standing from the Corporation Commission, and any other information I could get my habds on (including all the property information) and I would drop it all on the desk of a good M&A Attorney.
This is not something you want to do on advice from an internet chat room.
It is all in how the purchase is structured. When I was interested in buying a business from a friend (never did), this was the first thing my attorney told me.
It is your intention to gain control of the property and at the same time limiting your risks.
Please spend 30 minutes speaking to a M&A Attorney in your area and explain to him or her your situation.
After you have consulted with the attorney, please come back and share the details.