QUAD DEAL-Ed? - Posted by ReBeccah

Posted by Paul Macdonald on November 14, 2000 at 11:53:39:

You are welcome. Hope some of it helps. That 140k exchange should allow you to buy at least one to three of the properties using a Fannie/Freddie expanded program (roughly three weeks). When you pick your lender (anytype except hard money - don’t know that game very well) if you want some feedback let me know and I’ll tell you if (per my opinion anyway)they are steering you straight if you want.

I live and work in Virginia. 703-354-4024

Good luck.

QUAD DEAL-Ed? - Posted by ReBeccah

Posted by ReBeccah on November 08, 2000 at 18:37:46:

I would like a little advice here. Here are the details of a deal I am working on:

It involves 4 quads. (They comp @ $200k each.) The seller’s asking $175K each but we’re negotiating on a price for all 4(we’re currently at $600k). The cash flow for all is $8500 monthly. No seller financing availabe. There is currently a non-assumable mtg. on all. I have a lender willing to loan me 70% LTV at 12.5% with 7 pts. rolled in on a 30 year balloon for a first mtg. I’ve worked with this lender before and am ok with them and their terms. I have another lender who says they can loan me the remaining 30% + closing costs @ 6% on a 7 year balloon, however I’ve never worked with them before.

So, after all is said and done, the positive cash flow will be about $4000/month. The thing I’m worried about is if this 2nd lender doesn’t come through with the 30% etc, the deal will fall through unless I have an alternative plan.(I’m obviously trying to get 100% financing)

What other options do you recomend for coming up with the 30%?

Any and all advice is greatly appreciated. Thank you so much!!

I’m Suspicious… - Posted by JPiper

Posted by JPiper on November 09, 2000 at 06:58:38:

I’m bothered a little by the way you’ve laid your deal out. As an example, you say that your deal has monthly “cashflow” of $8500. We know for starters that this is not the correct terminology…because later you mention “positive cash flow” of $4000…where it appears that you subtracted some debt service from the $8500. Try as I might, I can’t see how you arrived at $4000 if both of the proposed loans are interest only. What I would get here is about $3200 (again assuming both loans are interest only). If either loan is amortized then your cashflow is even less.

But because of this and the terminology used, I begin to wonder what this $8500 is. Is it gross income? Net operating income?

My suspicion is that the $8500 is gross income…and if this is the case then your deal will be running at a negative from day one…assuming the loans are interest only. I get debt service of about $5300.

More directly though, I would also be supsicious of a 2nd mortgage loan for the top 30% of your deal at 6% interest. I don’t see that happening…unless perhaps this “lender” is a fairly unsophisticated private party. If this is anyone other than an unsophisticated private party, I don’t see you getting a second at 6% interest.

Perhaps you could provide more detail…including some detail on what the 8500 is…gross income or what.


Re: QUAD DEAL-Ed? - Posted by Clark

Posted by Clark on November 08, 2000 at 21:06:53:

Hello, My name is Clark and I"m new to realestate and I was wondering how I can find lenders like the ones you are dealing with? I would appreciate response. Thank Clark

Re: I’m Suspicious… - Posted by ReBeccah

Posted by ReBeccah on November 09, 2000 at 10:16:27:

Ok, I’ll clarify a little:
(These are annual numbers based on $500K, as we are still negotiating)

$102,180 is annual gross income, minus 5% vacancy allowance leaves $97,071 as effective gross income.Subtract expenses of 17,108 and that leaves $79,963 as net operating income. Subtract total debt service of $54,084 and that leaves a positive cash flow of $25,879 annually.

Re: I’m Suspicious… - Posted by JPiper

Posted by JPiper on November 09, 2000 at 20:40:35:

In my opinion these numbers you’re using aren’t real.

For example, expenses of $17,108 are about 16.7% of gross. I would never use a number that low. Frankly, I normally use 40% for vacancy/expenses as an estimate. But I would never use anything less than 35%. When I apply that to your gross income, I get $66,417 NOI. This is about $13,500 LESS than the number you have arrived at.

Your other numbers seem to be all over the map. $600K was the original price you mentioned…now it’s $500K. Originally you mentioned $4K in cashflow, now it’s $2K. I just calculated $1K or so based on what I regard as realistic expenses. And this using a purchase price that’s $100K less than what you originally mentioned.

The last factor that still seems unbelievable is a 6% second mortgage for the top 30% of your deal. Again, maybe you know something we don’t…but if that part of your deal becomes a higher, more realistic rate then your cashflow evaporates…even at the $500K price.

Let’s assume for a moment that the appraisal of $200K per building is true. The bottomline is that your financing is such that even at a price of $125K per building you’re having trouble creating cashflow. In other words, the financing isn’t particularly good, and there’s too much of it.

In my mind if the appraisal is true, then a better exit for this deal is to take the deal down if you can truly negotiate it at $125K per building…and then sell. With your financing this deal doesn’t look like a hold.


The numbers don’t work. - Posted by Paul Macdonald

Posted by Paul Macdonald on November 09, 2000 at 15:14:24:

Forget “effective” gross income. Only listing agents and suckers believe “effective” gross income. No lender will. What was the real income the last three years? On a commercial deal you’ll get qualifing income of 95% of the real income. On a residential deal you’ll be allowed 75% of the real income.

70% (420k) at 12.5% interest only is $52,500 per year.
30% (180k) at 6% interest only is $10,800 per year.
That equals $63,300 per year. Not $54k. Am I missing something?

Are these units seperately deeded?

And lastly: 7 POINTS ON A 70% LOAN with a 30% 2nd? Are you nuts? If your seller or the lender offering 6% seconds for 100% CLTV’s is willing to be creative on seperately deeded properties do a musical chairs game with substitution of collateral from property one to property two to property three to property four. Than go to a Fannie/Freddie lender and get a 70% first at 8.5% to 9% first with maybe a couple of points for a 30 year fixed mortgage. And save hundreds per month in cash flow and about $22,000 in lender points. If it’s not seperately deeded have the second provider go on in and do an equity share deal with a buyout agreement and go get standard commerical financing @ 75% LTV. 12.5% and 7 points is WAY too high.

Re: The numbers don’t work. - Posted by ReBeccah

Posted by ReBeccah on November 09, 2000 at 15:41:06:

Ok forget the word “effective”, the gross income is still the same number.

And no I am not nuts. There is no way I would ever be able to get 8, 9, or even 10% interest with my credit. The lowest I have been quoted in the last 18 months is 11.8%. Also, the lender with the 12.5% and 7 points requires no paperwork from me. Nothing but the contract and a photograph of the property. They also provide the money in LESS THAN 5 days. No digging in my credit, no requests for bank statements from the past 400 years, and they don’t ask about my personal income,none of that crap.

I just spent 4 months in a loan nightmare dealing with a commercial lender and I’d rather accept the higher terms than go through that again.

So if you’re lucky enough to get commercial financing with low interest and low points, good for you. Those of us who are “nuts” aren’t so lucky.

Lucky? What has luck got to do with it? - Posted by Paul Macdonald

Posted by Paul Macdonald on November 09, 2000 at 20:50:12:

It takes hard work to have good credit. And questions about income and other such “crap” is how you can improve your monthly cash flow. If it?s such a pain in the tail hire someone to do it for you.

With huge cash flow savings/improvements to you it might be the difference between doing the deal or not doing the deal. And right now you need that cash flow. Using interest only (and you never did mention if it was interest only or amortized, if amortized, what term) your positive cash flow is $1,388 per month. Or $86.75 per unit. Tight. If it is amortizing over 30 years your monthly positive cash flow is $1,101 per month. $68.81 per unit. Very tight. And in my area hard money generally comes with a 1 year balloon - same where ever you are? Really, really tight.

You didn’t answer about the other items; is it separately deeded? What about the equity share and buyout agreement? Are they possible?

Now if you used your provider of the second (going from a loan to an equity share is not that big a jump conception wise) or the musical chairs if separately deeded or somebody with good credit:
70% first @ 8.5% 30 yr. am. = $3,229
Second stays the same = $ 900
Stated NOI @ 79,963/12 = $6,663
Positive cash flow = $2,535 or $158.43 per unit. Not as tight.

An improvement of $22,000 up front and up to $1,431 per month. For 30 years = $537,160. Dang! Over half a million dollars MORE than currently structured. That’s worth a little crapola.

I am a lender (not offering or suggesting that we work together). The reason I come to this and a couple other sites’ is to learn how to be creative. That’s hard for me. But I know ways to help people by using the loopholes and connections that I have and that?s what I was sharing even if a little too vehemently. Just as I hope to become more effective by looking at the creative side from the sound of it if you added a firm basis of “normal” financing you’d be a powerhouse.

Re: The numbers don’t work. - Posted by Paul Macdonald

Posted by Paul Macdonald on November 09, 2000 at 19:37:41:

I beg your pardon. Everyone has their own motivations and I let mine dictate my response.

Have you considered a partner you could buy out to lower your costs and ongoing expenses?

Was I at least correct about the numbers?

Re: The numbers don’t work. - Posted by ReBeccah

Posted by ReBeccah on November 10, 2000 at 12:00:49:

The properties are deeded separately.

(The positive cash flow I came up with takes into consideration all expenses including 5% vacancy allowance, in case you were wondering.) Also, both loans are interest only. One is for 30 year balloon 12.5% and the other 7 year balloon at 6%. (Equity share and buyout is not agreeable.)

A new twist this morning, is now we are considering doing a swap for a piece of commercial property I own (appraised at $300k) which would be quite helpful. And the seller may agree to a deferred downpayment.

I agree, obtaining and maintaining good credit is hard work, however, 4 years after a divorce and subsequent bankruptcy my scores hover around 600. So I am getting there slowly but surely. And a “firm basis of normal financing” would be sweet, but for now I do what I can. Don’t worry, I’ve been in real estate for 13 years and I’ve been called a lot worse than “nuts”.

Re: The numbers don’t work. - Posted by Paul Macdonald

Posted by Paul Macdonald on November 10, 2000 at 12:51:36:

Seperately deeded is tremendous. And scores in the 600 range are great. Not nearly as bad as I feared.

How much “equity” (or buyer allowed credit) from the commercial unit is available? If you have reasonable (defined as street/CMA/appraisal values NOT purchase price so seasoning is not an issue) value that the seller will credit to you towards the purchase Fannie/Freddie have something called their expanded loan programs where a 600 score is in the door. And a “reasonable” purchase credit from a trade is considered the same as a down payment.

Therefore, in the expanded programs you could get a 10/20/30 whatever percent credit towards the purchase. So applying for one of these loans with a 50% or 60% or 70% LTV (of course positive cash flow using the 75% rule) and the BK at least 4 years ago you should be in phat city (a little village in Viet Nam). And if Fannie/Freddie had an issue with something this is a no-brainer for an IndyMac loan.

So you buy the first one (or 2 or 3 or 4 - depending on trade value).

If there is not enough trade value read on:

NOW, what you do next is instead of doing the deferred downpayment, take an “equity” loan from the seller on the unit you just bought (term is not applicable to the lender of the second/third/fourth property - so a 10/20/30 month ballon (read deferred down payment) won’t matter as it would on the subject property). And buy the second/third/fourth with a 50/60/70 LTV. And so on. That’s why its called musical chairs cause the “equity” loan keeps going round and round.

You’d get better rates, MUCH better point fee’s. Only issue I cannot answer is the 5 days to settlement. Even a great “normal” lender who was to get an extra point or two would be in the 10 day range if there were no problems.

Woof, I’m tired of typing. I’m going to shut up and go back to just reading. Best of luck.

Re: The numbers don’t work. - Posted by ReBeccah

Posted by ReBeccah on November 10, 2000 at 15:37:16:

There is a loan against the commercial property for $160k leaving about $140k for “swapping” purposes.

Thanks for all your advice—where are you located anyway?