Posted by Chris in FL on August 16, 2011 at 18:41:03:
Lack of punctuation… I read it different than you… Not sure which is right:
I read: “I was wrong. it is adjustable. taxes
current. 2400 a year loan; was in
default. it is not anymore. the loan is
from bank of America, and has no HELOC.”
You read:
“I was wrong; it is adjustable. taxes
current, 2400 a year. loan was in
default; it is not anymore. the loan is
from bank of America, and has no HELOC.”
Hmmmmmmmm…???
Also, I thought Paul originally stated loan payment included taxes and insurance (didn’t recheck that for accuracy now; in a hurry)… In which case, taxes number would not be an issue - it was factored in. If not part of loan payment, then insurance probably isn’t either?
I look at value… I also look at cash flow… Plus, deal carries a lot more value if it is nothing down, for someone that has nothing to put down… The deals available to them are much more limited - they can’t “steal” properties by paying cash, closing quick, etc.
Sorry if I misunderstood the information presented, and it got things a little haywire… Just trying to help!
I have this guy with a 4 unit building all
units have tenants his payment for 1600
the rents r 3000
he is willing to give it to me for what was
on it and it is subject to I just had to fax
over the contract I want to move quick
are there any risks to me what should I
do
Re: sunject too what are the risks - Posted by Chris in FL
Posted by Chris in FL on August 16, 2011 at 06:44:26:
Two sources of information… One, ask the seller why he is letting such a great building get away? Two, talk to the residents… They are usually a great source of information, both about the property, and about the seller and his situation. However, I would aim to tie it up with a contract asap - if it is as good as it sounds, you snooze, you lose.
Re: sunject too what are the risks - Posted by Chris in FL
Posted by Chris in FL on August 16, 2011 at 06:41:10:
I see lots of concern expressed… Reason - it sounds too good to be true. When that happens, get it under contract fast before someone else does! Leave yourself some outs in case it is too good to be true for unacceptable reasons. However, with subject to deal, if you do it correctly, if you state plainly that you will do your best, but you are not guaranteeing the loan in any way, then you can always walk away later if it does not go as expected… Your name is not on the loan; your credit is not at risk. Sounds like this one will cash flow like crazy in the mean time - my thought would be ‘don’t let it get away’. If you are in Central Florida - call me - I would help you look, and if it is as good as it sounds, be happy to buy you out if you wanted! LOL
Do your due diligence, of course, but if you take too long, somebody else will probably snatch it up.
Re: sunject too what are the risks - Posted by Kristine-CA
Posted by Kristine-CA on August 15, 2011 at 20:03:23:
Some things to find out/think about:
What are the terms of the loan? Is it adjustable rate? Is there a balloon
payment? Is it currently in default? Has it been in default? Who is the
lender?
What are the taxes? Are there any current county or city code
violations?
What’s this guy’s situation? Does he have liens against him from the
IRS or other judgments. Is there is a pending divorce or BK or other
nasty situation which wouldn’t be fun for you, even if you do get the
deed.
What’s the reason he is selling? People don’t usually give away
property that is cash flowing unless…it’s not.
So, yeah, there are lots of risks and there is no hurry, IMO. Find out
what’s really going on and then go from there. Kristine
I was wrong it is adjustable taxes
current 2400 a year loan was in
default it is not anymore the loan is
from bank of America and has no HELOC
he is an investor selling because he
no longer lives in this state I’m
faxing over a contract right now!!!
Has some outs j.I.c. what do u think
do I have my first deal!!!
Re: sunject too what are the risks - Posted by Kristine-CA
Posted by Kristine-CA on August 16, 2011 at 18:19:44:
Congrats on working directly with a buyer and getting a deal under
contract. Could be a first deal, or it could be that the numbers aren’t
what you think they are or what the seller says they are.
Still want to know why someone with $175K in equity didn’t
sell…when they were in foreclosure. Moving out of state is no barrier
to selling. My experience says the value will be $225K or less.
So, get a copy of the promissory note that you are considering taking
over, proof of rent payments made by current tenants, copies of actual
utility bills, look at the upcoming tax bill, inspect the property. I’d also
get a title report…because you’re gonna need one.
And then please report back what you find and if you decide to go
forward. Happy due diligence. Kristine
Re: sunject too what are the risks - Posted by Chris in FL
Posted by Chris in FL on August 16, 2011 at 18:17:17:
Wow, $3000/month rents and $1600 loans is a lot different picture than $3000/month rents and $2400 loans… Plus adjustable, so it could go up. With my SFRs, I project 25% of rents as vacancy factor and repairs expense. Based on $3000/month rents, that means $750/month vacancy and repairs… Now I can see where the owner would get behind - one bad month with big repairs can be too much for someone that doesn’t have strong finances/reserves. With your new loan number, I would suggest proceeding with a lot more caution than originally planned. You have to do your own projections, plan everything out, etc., but that is a huge change in the monthly numbers. I don’t know your area, but in my area, I can buy 4 small SFRs and have smaller monthly payments than $2400, and I like SFRs better than apartment units. They attract better tenants, and are easier to resell at retail prices.
Two things were great about your deal (without ever seeing the area, property, comps, etc.)… One, buying with no money out of your pocket… Two, a nice positive monthly cash flow from day one… Well, new information might have just killed one or your two greats. Based on the new numbers, I would suggest you do lots of homework to make sure this is the right deal for you… Be especially aware of big ticket items that may need replacing soon - are things like the roof, A/C, electric, newer, older, or on their last legs? Also, deal breaker for sure if the units are not all individually metered, with tenants fully responsible for all utilities… If you are responsible for any utilities, your numbers are probably too far upside down to make any cents! Sorry to say, but IMHO, that change in loan payments is a huge curve ball!
Re: sunject too what are the risks - Posted by Kristine-CA
Posted by Kristine-CA on August 16, 2011 at 11:11:52:
What are the terms of that loan? $225K 30 yr fixed at 3 1/4 isn’t
$1600 a month.
$175K in equity is kind of a lot $$ for someone to walk away from. I
did a four house deal with that much on the table but it involved a ton
o’ problem solving. And lots o’ cash up front. Haven’t yet found a deal
with that kind of equity that I could just fax over a contract and take
over payments. Not saying it doesn’t happen…maybe it will happen
today!
Are you sure of value? Who says it’s worth $400K? What’s the cash
price today (the only price that matters) and who would buy it? At that
price it would barely cash flow for a buyer with a decent loan and no
repair issues and no vacancies.
Are you sure that the loan isn’t $400K and the value $225K?
My guess is that if the loan is really $225K and the FMV is really $400K
that the equity is on a judgment or lien somewhere.
Remember this: the seller knows considerably more about his property than you do. So you need to verify everything, as JT said below. But frankly, there’s no way that the loan is a fixed rate loan at 3.25 percent, non-owner occupied. And, it’s hard to believe that he’s willing to sell at nearly 50% LTV, especially if the rents are correct.
Re: sunject too what are the risks - Posted by Dr. B. (OH)
Posted by Dr. B. (OH) on August 15, 2011 at 21:19:48:
How in the world did he get a 3-1/4 fixed on a 4-family? Particularly if it is an older loan. Which it would seem to be, given the difference in what is owed and current value (appraised by whom?).
If that statement is true, then you tie the property up contracturally NOW. Maybe insert a clause or two, giving you enough time to VERIFY everything; title search, doc prep, etc. Use an Atty or a qualified title company.
The only thing I would add to Kristine’s list is make certain that there are NO open lines of credit; HELOC. The last thing that you need is to know about a 1st mtg when an open check writing LOC is sitting there, and a day after you close they max out the LOC; now suddenly the 225K could be 325K. So just make certain that there is no LOC of record, via a title search, aka due diligence.
Now, my skeptical side says to me… why would someone leave that much equity on the table, if in fact your estimate of FMV is accurate. Caveat Emptor.
Re: sunject too what are the risks - Posted by Kristine-CA
Posted by Kristine-CA on August 16, 2011 at 18:26:24:
Chris: I might have missed something, but I didn’t see where the OP
posted that the monthly mortgage is $2400, but rather, the taxes are
$2400 a year.
Lots of unknowns here until due diligence is complete. But for me it’s
all about value. I’d be looking hard for reasons why “an investor” “out
of state” is giving away $175K in equity.
Trouble for most people starting out is they want the deals they find to
be deals and they just insist that they are. It takes some clarity (and
the more experience the better) to look at numbers without wishful
thinking.
Hopefully the OPs deal has some upside and he’ll learn plenty by doing
the due diligence on this one.
Re: sunject too what are the risks - Posted by Chris in FL
Posted by Chris in FL on August 16, 2011 at 21:19:22:
Paul,
Sorry for my confusion… So, based on what you are telling us, it does sound like a good deal (still not sure; taxes and insurance included in $1660 loan payments, or not, and if not, how much will insurance cost you?). Also, you saw my inquiries about utilities? It can make a big difference if you have to pay utilities for four units, and tenants don’t care how high your utility bills are.
Overall, though, seems like a motivated seller - too hard to own/manage a property from another state. Buy/sell contracts are actually pretty simple - just think of it as taking everything the two of you have already agreed to, and finalizing it in writing, to be used to close the transaction. You will want to understand subject to well - big pointer - make sure you state plainly that deal is subject to existing mortgage(s) XYZ, which will stay in seller’s name, and that you will take over making the payments. Should state that you do not guarantee the payments in any way, and the possibility exists that the bank could call the note due. Many use land trusts so that the underlying lender is less likely to know about the transaction (since it almost always violates their due on sale clause). If your friend with title company knows and understands land trusts/subject to deals, he should be able to walk you through everything. If he doesn’t, you may want to inquire around for a title company that does these transactions routinely (some title companies know and understand them well; some are unable to grasp the concepts at all - getting a title company that knows what they are doing is especially important since (I am assuming) you are pretty new to this type of transaction.
