Posted by John Behle on October 18, 1998 at 18:26:59:
What is the property worth? What is the cash flow? What is the loan amount? What are the terms? Do you have to cash him out? Why? Would he take a discount? How much? Would he take part cash and subordinate to a new loan? Would he trade out with an existing mortgage on another property? Does he know his tax consequences if he did cash out? Can you arrange a buyer to buy his note so he can get his cash? Does he know what a “partial” is and would selling part of the note meet his needs or desires?
Lot’s of questions, give us some more details and we can brainstorm the deal.
I have been the owner of an 18 unit commercial property in an area that is considered slum by most lenders for 2 years now. I need opinions/suggestions on what to do to cash-out the present mortgagor (previous owner). I have attempted to take the deal to several brokers and lenders but to no avail (the reason is always its location). Are there other options that I have not considered? Ultimately, I would like to keep this building since it is a serious cash cow! Any suggestions would be seriousily appreciated.
Thanks for the response to my question I will try to supply more details now…
-Unfortunately, I have tried without success to find a note buyer for this property, any suggests in the area are welcome!
-Yes, the reason for the refinance is the present mortgagee was suppose to be cashed out after 18 months however, since I was unable to find refinancing they have allowed an automatic extension on the note.
-Not sure what F&C is, sorry???
-My present mortgagee owned this building without any liens prior to my purchase.
-I’m unsure of the property worth since it is impossible to find comps within the area to gauge.
Loan Balance: $142,000
Current annual gross income is $104,200.00;
Total Expenses $60,002.69;
NOI is $44,197.51;
CAP RATE: 18.42%
-Mortgagee may take a small discount at this point and time, unsure tho. She (mortgagee) may take a partial at this point but her decision making is limited since it is a administrator of an estate with many other siblings to vote.
Posted by DougO(NM) on October 18, 1998 at 17:06:30:
Although I don’t know the particulars of the deal, surely you could find a private party to purchase that mortgage, or part of it anyway. Why do you need to cash them out, do you have a baloon coming due ? did they own it F&C and carry paper -or- do they have a mortgage or what ? Perhaps some of us could give you some better advice if we knew more about it. Good Luck
Doug
Re: Multi-Family Building Deal HELP!! - Posted by DougO(NM)
Posted by DougO(NM) on October 19, 1998 at 10:28:28:
Looks like the motivation here is for the heirs of the estate to get their hands on the money. MOST, not all, of the time, when shown that they can either get the $142,000 note balance over the length of the loan,-or- they can get somewhat less than that now and cash out, they’ll cash out. (BTW, F&C means free and clear) The numbers you gave are:
Loan Balance: $142,000
Current annual gross income is $104,200.00;
Total Expenses $60,002.69;
NOI is $44,197.51;
CAP RATE: 18.42%
Based on these numbers, you are showing 58% expenses, though I don’t know what is normal for this size property.Seems high. With current interest rates, for discussion purposes, lets assume that an appraiser would put a 10% cap rate on that NOI of $44,197.51. That would place a value of $441,974. At 15% it would be $294,650. With a loan balance of $142,000, that would be a loan to value ratio of either 32% or 48%. These numbers would seem to indicate that if someone were to purchase this note at face value, the property would be worth more than the note based on the value of the income stream. A note buyer is going to want to know many things here: What you paid for the property, what the down payment was, the terms of the note (Interest Rate, Original Amount, Current Balance, Payment, Term ), they’ll want to know the credit history of the payor and payment history on this note. They’ll want to be sure that the collateral is not a pile of junk, etc. Anyway, there are many many note buyers out there, and many whose cost of funds are so cheap now that they are able to purchase notes at or near face value. For example, if your note is written at 10%, and the note buyers cost of funds is 6%, they are still making a spead of 4%. However if the area is as bad as you say, the discount will have to be enough to provide enough return so that the investor/note buyer is secure and comfortable. Just keep your eyes open and be aware of these things as you go through this process. This is excellent time to remind everyone that this is the reason we want to have the first right of refusal to purchase the note if it is ever sold, and that we can meet the terms of any bonafide third party offer. This lets the other party be the “bad guy” by making the lowball offer, and puts you into the posistion of being able to borrow the $ to buy the note at a discount and possibly pay less for the property. Good Luck