How does this deal sound? - Posted by Skywalker

Posted by gary on February 02, 2001 at 19:52:48:

First, don’t practice fraud in this business. You have to sign docs at closing stating you will be occupying the property and if the lender finds out you are not there, they could call the loan. I always look at the rate of return as if I put cash into the deal out of my pocket. In your case, that is $9500. You say the cash flow is about $300 a month (not deducting cost of borrowing the 9.5k). Even if we throw another $100 a month into an expense account for future repairs, that is $2400 a year on a $9.5k investment or about 24% return on investment. I don’t know of any banks that will give you that return on your CD or any stock that would give me that return with such a low risk. You have a deal here no doubt, if your other expenses are accurate. The cost of borrowing the $9.5k is $960 a year. So, you net $1440 a year on a 9.5k investment. Still about a 15% return. Remember, the $960 interest to borrow the 9.5k is also tax deductible. I would go with the deal as non-owner occupied but try to get a 30 yr. fixed mortgage. With your credit score you can do easily. I do the same with Greenpoint Mortgage, they are on the web. My most recent 90%LTV investor loan was less than 8%, fixed for 30 years. Do you have other access to $10k, like borrowing from a 401k or a friend/relative? Do the deal, then find the best source of the $10k, using your line of credit as a last resort if you have to. Strike on this and don’t get into analysis paralysis.

How does this deal sound? - Posted by Skywalker

Posted by Skywalker on February 01, 2001 at 16:59:37:

Large Duplex on a good street/good neighborhood. 3 bdrms down and 2 bdrms up. Very good condition. Both units already rented and tenants will stay. Vinyl siding on the outside. Unfinished basement.

Asking price $84,900. I’d buy for $80,000.
Gross Annual Rent = $14,400
Annual Operating Exp= $2400

Built in 1910, but completely updated.

Rent is in line w/ market rents.

I do not believe there is any assumable financing and the owner is not willing to participate in the financing.

No deferred maintenance.

My credit score is 680-720.

I have no mortgages currently, either owner occupied or non-owner occupied.

I can:

  1. Get a zero down mortgage (owner occupied) @ 7.5% (3yr ARM), w/ about $1500 in closing costs. I have a $10,000 personal line of credit that I can borrow up to $10,000 @ 10%, interest only payments for 5 yrs ($25 min pmt) w/ principal due in 5 yrs.
    $80,000 Mortgage = 560/mo.
  • approx $150 for taxes/ins = $710/mo.
    $1500 @ 10% (int only) = $25/mo.
    Total Debt service = $735

2.) Go with non-owner occupied financing. Borrow the 10% down pmt of $8000 plus closing costs from my line of credit totaling approx $9500. Mortgage 90% LTV of $72,000 @ 8.5%.
$72,000 Mortgage = $555/mo.
+$150 taxes/ins = $705
$9500 @ 10$ = $80
Total Debt Service = $780

Monthly Rents = $1200
Est Monthly Op Exp = $200
Debt Service = $780 or $735

Cash Flow = $220-$265/ mo.

***Is it legal to get an owner occupied mortgage even though I have zero intentions of living? If not I clearly take option 2. But if not, is their an advantage or disadvantage to option 1 or 2? Are their better options out there?

Sorry for being so long winded but I wanted to be as detailed as possible.