Posted by JT-IN on December 20, 2002 at 17:32:13:
Jim:
I do rmeember that being intro’d by David A… Good techinique, and glad that you have used it effectively. Thanks for reminding me on the idea…
BTW… what the heck happened to David A… anyway?
Have a Happy Holiday season.
JT-IN
Do any of you take over variable loans? - Posted by Jerry
Posted by Jerry on December 20, 2002 at 12:40:11:
A couple wants to pay me four months of mortgage payments to take over their loans. Problem is, the first note is a 2/28 variable rate, and starts out high. The initial 2 years is up as of this month, so it starts adjusting every 6 months now.
Current principal amount = $132,000
Initial rate = 9.25%
Max first rate adjustment = 10.75%
Rate index = LIBOR plus 6.75%
Max adjustment every 6 mos. = 1%
Ceiling Rate = 15.75%
So, their monthly payment on the first is about $1300 PITI and about $300 on a $23,000 second. The house comps at about $180,000, but I could sell on terms for probably $190,000. $1600 a month is already too high, but if the rate increases…hoo boy. The more I think about it, the more I think this is not a deal.
What if I convinced them to refinance the two loans into one fixed-rate loan? Probably the only thing that makes any sense. Maybe it’s too thin anyway. It would be about a 17% equity position after refi.
Any ideas?
Also, my original question: Do any of you take over variable rate loans for houses you’re planning to sell or L/O?
No prob with variable rate mtg - Posted by JT-IN
Posted by JT-IN on December 20, 2002 at 12:58:09:
Jerry:
There is no problem with the variable rate, nor the interest rate being so high at 9.25%. However, the problem in this deal is with the LTV, or available equity.
The solution may be to get the owner to continue paying you, the payment due each month on the 2nd mtg, (very important that the payment comes directly to you each month, as opposed to paying to the 2nd lender, thsi way you know it is paid timely). Of course there is risk in whether they will pay you or not, but at least you may be able to realize some decent cash flow if you choose to L/O the property.
Again, not the greatest deal, but possibly still doable if you can get more participation from the Seller.
Just the way that I view things…
JT-IN
Re: No prob with variable rate mtg - Posted by Jerry
Posted by Jerry on December 20, 2002 at 16:48:23:
Thanks for the comments, JT.
I’ve spoken with them since, and they are willing to refi into one fixed-rate loan if it would help. I think I could tell them 7% is about as high as they can go and still make it a deal, which would bring the payments down to about $1250. That would be even better than having them pay me $300/mo and me paying $1300, with the risk of increasing payments every 6 months. What do you think?
But, you mentioned the LTV is the problem. Are you speaking of the deal being too thin at 17% equity? I wish there was more, of course, but are you saying you wouldn’t do the deal?
Thanks again-
Re: No prob with variable rate mtg - Posted by Jim FL
Posted by Jim FL on December 20, 2002 at 16:18:40:
JT,
I’ve done this with sellers before, had them cover the second mortgage payments for a period of time.
Instead of just trusting them to make the payments, even though they were directed to me, I secured them with something.
Even if it was not equal in value to the note amount.
I’ve had relatives of sellers sign to secure them as second notes matching the terms of the second I was patying on, to their homes as seconds.
I’ve secured them with cars, boats, and even a motorcycle once.
Sure not totally secure, since most things had wheels.
But, I got paid, because the sellers took the payments more serious.
I did allow the second to get paid off early on most since we had buyers in there for more than the balance.
As soon as I paid off the second notes on my houses purchased, the sellers were released from further obligation.
I could have kept them paying for a certain length of time for cash flow, but did not feel right about it for some reason.
Call me quirky.
Anyway, just wanted to add to your thoughts.
My $.02 anyway,
Jim FL
P.S. the credit for the idea of securing these payments must go to David A., he helped me with one where I did that the first time, by suggesting it in the first place.
That one we secured with the sellers new house, since the second the seller as paying for to us was taken out to secure the down on his new house anyway.
Re: No prob with variable rate mtg - Posted by JT-IN
Posted by JT-IN on December 20, 2002 at 17:40:15:
Jerry:
The answer deepends greatly on the condition of the local market, as to L/O and acquiring T/B’s. If they are plentiful and you can L/O it with no problem, then I would go for it. If the mkt is at all soft, then I would pass, unless you have lots of capital on hand, just in casae you needed to “feed the animal”, in case you can’t rent it or sell it.
Marginal deal, just depends on your local mkt…
JT-IN