Posted by Bill K.- FL on June 27, 2000 at 07:55:16:
Basically, you’re talking about a no money down deal which when you are trying to sell a note sharply increases the discount. You failed to mention how you are borrowing the 17800. Is this going to be an equity loan on another property so you can put this amt down in cash? If not, you are talking about a no money down deal which will mean a steep discount in selling a first. Also, since this is going to be a rental property, and not owner occupied the discount will even be higher or the LTV will have to be lower. So basically you might have two big obstacles here in marketing the note. No down and rental property. Either way the first will have to be for an amount much larger than 61200 so you will have to use that as a guide to structuring the rest of the financing and purchase price. If the seller is not motivated to take less than 89K you might not be able to pull this off. Unless someone has another idea.
I’m totally new to notes, and relatively new to real estate (3 deals in the last year). I’m up to tape 6 in John’s course, and will be in Utah in a few weeks. I may have just enough information to be dangerous, so I’d like to run a potential deal by you.
Found a nice renovated Victorian duplex about 2 miles away through word of mouth. Oversized lot, great condition. It’s part of an estate, the owners are willing to sell for $89K, priced for quick sale. FMV is around 110K, although I’m in a very weird buyer’s market, so a nice house like this could sit for 6 months at 110K. I believe it will easily appraise for this. We plan to keep this for a rental until the market improves (at least 5 years).
My question is: the sellers are willing to finance some portion of the price for a short term (2-3 years), and we’re going to ask them to do this for $10K. We can borrow 17,800 (20%) at 7.5%. That leaves $61,200. We’d like to construct a note that would give us the $61,200 within 45 days. I’d like to know the parameters we should use to make such a note desireable to sell at a discount. This note would be in first position.
To sum up:
FMV: $110K
price: $89K
cash we need: $61.2K
LTV (assuming V=price): 69%
LTV (assuming V=FMV): 56%
my partner and I have excellent credit
expected rental income on property: $1200/mo.
Any help and advice is very much appreciated. We’re going to try to tie this up with a contract tomorrow.
Anne:
What Bill K. has shared is accurate, however I suspect you are going to be putting down 20% cash here (it does not matter where you come up with that cash to us). The seller will hold a $10K 2nd lien and the rest of the funds ($61,200.00) you need to generate to meet the sellers objective of receiving a total of $89K for the home.
If you will have the seller agree to hold both a $66,000.00 1st lien along with the $10K 2nd lien, your first lien can then be sold at the time of closing to generate the $61,200.00 +/- in cash that is needed to get the seller what they want. I would write the $66K note @ 11% and amortize it over 360 years with a 120 year balloon payment (if your’re OK with that). Monthly payments on the $66K 1st lien would be $628.53
As stated, this note can be easily “tweaked” to raise more or less cash, to go with a different interest rate, etc. - This is just an illustrated BALLPARK for you. Because the note is starting out at $66,000.00, in essence you are paying $93,800.00 for the home however you are getting in easy, with no points, limited qualifying, no application fees, no monthly escrows or pre payment of escrow accounts, etc.