structuring owner financing on a 4-unit - Posted by chadWV

Posted by Ed Garcia on September 15, 2000 at 11:35:09:

Chad,

It really doesn’t make that much of a difference because, both loans are private party. Many investors don’t show private party loans if they don’t have to, because it will be counted against them when a lender figures out their debt ratios.

On the other hand if the second is not recorded, the new lender may treat it as a CASH OUT refi, and give you a lower LTV, so my suggestion is, to record the second. Also, as a second mortgage, you can write it off against the property, as a private party personal loan, you can’t. So I’m sure you can see the advantages of doing it as a second.

The only concern you should have is that the property will appraise for about 125K in five years, so that you will have enough room or equity to refinance to pay off your relative. I’m sure if you don’t they’ll work with you.

Good luck,

Ed Garcia

structuring owner financing on a 4-unit - Posted by chadWV

Posted by chadWV on September 15, 2000 at 10:05:25:

I have found a possible deal that involves a 4 unit building that owner is willing to finance. Selling price is 100k with owner carrying 85k at 9% w/ 5 year call (30 year amort). NOI is $12,010 w/ 5% vacancy and below market rents. This yields a current cap rate of 12%. Building appraised at $125k

My question regards the down payment. I have an investor who will loan me the 15k on a 10 year amort with 5 year call at 8%. Ths investor trusts me an doesn’t necessarily require me to record the second (read family). What happens in 5 years when I go to refinance? Would it be easier for me to refinance the building with the second recorded to pay off both loans? Or will lenders simply give me a 75-80 LTV loan and I can payoff the second privately?

The building is in great shape with little deferred maint. Only thing I would want to do is replace the windows in 5 years when I refin.

Thanks in advance,

Chad

What about this alternative? - Posted by Michael Morrongiello

Posted by Michael Morrongiello on September 15, 2000 at 19:23:24:

Chad:
Instead of having to worry about dealing with the seller financing offered and their 5 year balloon fuse, why not approach the sellers and see if they really would prefer CASH at closing instead of the paper they are willing to hold.

IF they are receptive, then lets structure a DIFFERENT seller financed note where you would have a farther out balloon (120 months or so)payment and perhaps slightly different repayment terms.

This 1st lien seller financed note is then converted into CASH for the sellers at the closing. They get cash (a reduced amount of cash), and you get longer term financing.

Remember the value of an income producing property is highly dependent on the income it will generate over time. To the extent that you can lock in LONGER TERM financing, you can escalate rents to improve the buildings income and it value.

To your success,

Michael Morrongiello

Re: structuring owner financing on a 4-unit - Posted by Paul_CO

Posted by Paul_CO on September 15, 2000 at 12:38:23:

So you get a $125K building for $100K, put none of your own money into it and have a small positive cash flow with upside in rents ! This is real estate investing at its best! This looks like one screamer deal to me. Do not worry about what happens in 5 years. If worse comes to worse you can sell it before the 5 year deadline and make 25K if nothing appreciated any.

Go do it now! Good Luck!

Happy investing!