Does this sound realistic? - Posted by ALS

import · June 24, 2005, 10:15pm

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import · June 24, 2005, 10:15pm

Posted by ALS on June 24, 2005 at 22:15:55:

I have never purchased income property before.

I am in a position to make an offer to purchase four rental properties from the same seller. I have prepared an sale/offer/contract (I have some background in contracts). I’m not confident about presenting it just yet, because I don’t know if I can pull the whole thing off (having never done a deal like this before, merely having read about them for a few years), but especially because I am not sure I’ll be able to find the money.

Is my thinking (described below) realistic?:

First, the situation.

The houses need minor repairs and some cleanup, but not an excessive amount. (Kitchen/bath remodels definitely needed in one property.) The sellers would prefer selling the four properties in as-is condition to fixing up and going through four separate sales and escrows. The range of my purchase price offer, should they accept a price in that range, would create some solid equity. Rental income would cover tax, insurance, and a six-percent mortgage on that price.

I want to live in a small apartment in one of the properties for at least a year while I manage the rentals of the others and do fixing and some remodeling.

I?d appreciate feedback, advice, suggestions, etc. on the foregoing, but especially what follows:

I want to put down $50,000 of my own money, and for six months borrow $1,000,000 at six percent interest (interest-only) from a private investor (first mortgage position). Within six months (probably sooner) I want to resell one of the properties and pay this private lender $100,000. (In other words, ten percent ROI in six months, probably sooner.) I want the lender to have the option of continuing financing the remaining properties at six percent or, if they don’t want to, I would also want to be able to find institutional financing at this time to purchase the $1,000,000 note from the private lender. It might be better for me if my future payments are to an institutional lender. But I’d like the private lender to know they can get out with their $1,100,000 if they want to.

Do you think I could find a private lender for such a deal?

Do you think an institutional lender would ever be available to buy the note if that private lender wanted out after six months?

What am I overlooking?

Is this even possible?

import · September 21, 2005, 7:32pm

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import · June 25, 2005, 7:43am

Re: Does this sound realistic? - Posted by Tommy

Posted by Tommy on June 25, 2005 at 07:43:24:

Selling the note is not the way to go in a few months because the private investor will lose money. Privately held notes are sold at a discount and usually the investor buying the note would want at least a 14% return on his money. One way that you could possibly structure the note is to get the 1,000,000.00 from the private investor but give him a note in escess of this amount in order to cover the discount so the private lender will get his funds back plus the interest that he charges. I think that one of the posts on this question states that you should post the question on the note board. I just wanted to give you some ideas and things to ask the folks on the note board so you can get your deal done.

Best of luck,

Tommy

import · June 25, 2005, 5:37am

Re: Does this sound realistic? - Posted by Will

Posted by Will on June 25, 2005 at 05:37:10:

I’m not sure I understand. You want to live in a small apartment in one of the properties. Does that mean that the properties are NOT 3 bedroom single-family houses? Or are you going to live in one of the four houses you are buying, thereby only being able to rent out three of the four? The only reason I ask is that you say 3 bedroom houses are going for $400K when you talk about the values. If you’re buying $1.6 million worth of real estate for $1.05 million, many things are possible.

import · June 24, 2005, 10:30pm

Two things… - Posted by Killer Joe

Posted by Killer Joe on June 24, 2005 at 22:30:12:

ALS,

The first thing…there is not enough info on the underlying properties to determine what you are trying to do. Can you give ballparks on the value of the 4 units.

The second thing you will want to do is post this on the NOTE board and get some feedback from those fine folks.

KJ

import · June 25, 2005, 3:29pm

Re: Does this sound realistic? - Posted by ALS

Posted by ALS on June 25, 2005 at 15:29:09:

Excellent idea. Will keep it in mind in case the issue of letting the lender out quickly in fact materializes.

Thank you.

import · June 25, 2005, 3:32pm

Re: Does this sound realistic? - Posted by ALS

Posted by ALS on June 25, 2005 at 15:32:39:

One of the houses has a “granny unit.”

Thanks for the feedback.

import · June 25, 2005, 12:13am

Re: Two things… - Posted by ALS

Posted by ALS on June 25, 2005 at 24:13:31:

Thanks.

Ballpark: three-bedroom houses in the area
have been selling for over $400K. It’s starting
to look like those prices peaked and properties
won’t hit that point again for a few years.

So I know my current hoped-for purchase price is
relatively low, but for various reasons, it’s
the one about which I’d want to start a conversation.

Will post on NOTE board post haste.

Thanks again.