Need help structuring this incredible deal. - Posted by James

Real Estate Investing
1

Posted by Jack Compton on November 14, 2000 at 24:56:08:

How much equity does the seller have in the property?

If he’s willing to take a 2nd lein, and you are getting the property for $89,000 (?) and there is no DOS (due on sale) clause (if so, you would need financing), you would become the owner at closing. The seller would only be a 2nd leinholder to title, subordinate to the 1st lein holder (prime lender), whom you would owe the remainder of whatever is owed on the property.

I recommend an attorney, just to be safe. You will do a title search, correct? Here’s how to prepare your property analysis (partial only, and covers just the finances):

Date:______________________________________2000

Name of property:______________________________

Location:______________________________________

Type of property:______________________________

Area it’s in: (Nice, or otherwise)_____________

List price: $__________________________________

Appraised value: $_____________________________

Cash required: $_______________________________

Existing assumable financing: 1st Lein Amount: $_______
Annual payment: $_______
Interest: _______%
How many years does the lein have left? _______

Existing assumable financing: 2nd Lein amount: $_______
Annual payment: $_______
Interest: _______%
How many years does the lein have left? _______

Existing assumable financing: 3rd Lein amount: $_______
Annual payment: $_______
Interest: _______%
How many years does the lein have left? _______

Potential financing:1st Lein amount: $_______
Annual payment: $_______
Interest: _______%

Potential financing:2nd Lein amount: $_______
Annual payment: $_______
Interest: _______%

Potential financing:3rd Lein amount: $_______
Annual payment: $_______
Interest: _______%

Scheduled gross income: $_______
Less vacancy and credit loss: %
LV & CL amounts to: $

Gross Operating Income: $_______

Less Operating Expenses:
Taxes: $_______
Insurance: $_______
Utilities: $_______
Advertising: $_______
Licenses and Permits: $_______
Management: $_______
Payroll: $_______
Payroll Taxes: $_______
Supplies: $_______
Services (lawn service, trash pick-up, etc): $_______
Maintenance: $_______
Reserve for replacement costs: $_______
Ground lease: $_______
Anything additional:__________________: $
__________________: $
__________________: $
__________________: $
__________________: $
__________________: $
_______________: $
: $
Total expenses: % $
Operating income: $
Other related income: $
Net operating income: $

Income adjusted to financing (Check one):
Actual_________
Potential______
Equity: $_______

Net operating income: $_______
Less loan payment on first loan:
First loan interest: $_______
First loan principal: $_______
Total first loan payment: $_______

Less loan payment on second loan:
Second loan interest: $_______
Second loan principal: $_______
Total of second loan payment: $_______

Less loan payment on third loan:
third loan interest: $_______
third loan principal: $_______
Total of third loan payment: $_______

Gross spendable income:
Rate: %
Gross spendable income equity: $
Plus principal payment: $______

Gross equity income:
Rate: _%
Gross equity income equity: $

Less depreciation:
Personal property: $_______
Improvements: $_______

Real estate taxable income: $_______

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Need help structuring this incredible deal. - Posted by James

Posted by James on November 14, 2000 at 24:28:33:

I recently attended a Real Estate Seminar and went out to see if I could buy some property with little or no money down. I found a duplex that has a 1st mortgage of $89,000, the seller agreed to take a note for $30,500 and all I need is $2,500 down plus closing costs. He just wants out of the rental business. Each side rents for $745 per month. Should I have an attorney write this contract? Will I own the duplex or will the seller since the bank still has a lien against the property?

3

Re: Need help structuring this incredible deal. - Posted by chris

Posted by chris on November 14, 2000 at 13:35:43:

well,

i must say Randy may have it right…i would guess that the payment on the 89,000 is somewhere around 1100/ month. That plus your additional payment on the 30,500 may put your costs too high to accept this deal.

CRUNCH THE NUMBERS!!

4

Re: Need help structuring this incredible deal. - Posted by Randy Banks

Posted by Randy Banks on November 14, 2000 at 10:53:43:

James, I strongly suggest that you run the numbers through the analysis that Jack provided. Just because you can buy a property with little to no money down does not make it an “incredible deal”. If the property does not generate you meaningful positive cash flow after all expenses, its not worth having.

With the owner having as much equity, as it appears you are willing to give them, you may have more room to negotiate a better purchase price for yourself. Remember, you want to buy based on past income performance of the property not on where you can, with your hard work, increase it.

Good luck in your investment plans!

Randy