I'm a little confused LTV

Commercial Real Estate Investing
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I'm a little confused LTV

Owen Hogarth
Real Estate Investor · fort lauderdale, FL · Member since 2009 · 82 posts · 2 votes

A seller offered owner financing on his mobile park, great rates and terms but come to find out his loan balance is more than he's selling for.

When I found out the loan balance, the property barely cash flows as is so; I don't get what he's trying to do?

Threw me for a loop and my head is still spinning, maybe because i'm a nubee :)
Any advice?

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  • Uwe S.
    Property Manager · Dublin, OH · Member since 2009 · 1k+ posts · 291 votes
    16y

    Can you post the numbers please?
    Thanks.

    -Uwe

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  • Owen Hogarth
    OP
    Real Estate Investor · fort lauderdale, FL · Member since 2009 · 82 posts · 2 votes
    16y

    45 unit mobile home park in the south east.

    seller owes 345,000 @ 7% with a bank.
    debt service $2,200 + taxes, insurance, and other management costs;
    that eats up his $5,000 per month.

    He has the property for sale at $300,000. 10% down and monthly payments of $2,000 for 24 months.

    The property owns quite a few of the lots but discounted rents for the renters to maintain the property there are also some vacant lots on the property. It's not connected to the city sewers and there's really high electrical bills for lights around the property.

    My question; what's the deal?

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  • Sam M.
    Real Estate Investor · Craigmont, ID · Member since 2009 · 564 posts · 239 votes
    16y

    I assume there is a balloon at the end of 24 months?

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  • Owen Hogarth
    OP
    Real Estate Investor · fort lauderdale, FL · Member since 2009 · 82 posts · 2 votes
    16y

    No balloons, I've checked. What I think is he's hoping that I get in there and get my hands dirty, fails and he can keep my down payment some extra payments but even that doesn't add up because he would need to pay out of pocket.

    $30,000 / 24 = $1250 per month
    Plus
    $2,000 from me per month
    $3,250 total per month

    he's short $1,750 that he's making now.

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  • Sam M.
    Real Estate Investor · Craigmont, ID · Member since 2009 · 564 posts · 239 votes
    16y

    Once you own the property the taxes, insurance and mantainance is your bill.

    You wrote above: "He has the property for sale at $300,000. 10% down and monthly payments of $2,000 for 24 months."

    What happens on the 25th month?

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  • Owen Hogarth
    OP
    Real Estate Investor · fort lauderdale, FL · Member since 2009 · 82 posts · 2 votes
    16y

    I know in a typical deal that I "would" do, after about 12 months of property seasoning at at market rates, I would refinance and cash him out before the 25th month.

    This property doesn't have much upside for me. I just found it strange when the seller made the offer and I had a chance to look under the hood.

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  • Uwe S.
    Property Manager · Dublin, OH · Member since 2009 · 1k+ posts · 291 votes
    16y
    Originally posted by Sam M.:
    Once you own the property the taxes, insurance and mantainance is your bill.


    He cannot own the propertie if there an other mortgage, its a wrap mortgage? But then you need an separate contract for assume taxes and bills. Most strange here.

    Whats income and occupancy?

    -Uwe

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  • Sam M.
    Real Estate Investor · Craigmont, ID · Member since 2009 · 564 posts · 239 votes
    16y

    Ask him what his plans are. Maybe there is something you are missing?????

    Or it could be that he needs 30k for some other project and has no intention of making the payments.

    I am not familiar with selling or buying on a wrap so it is probably best for others who know more to join in.....

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  • Owen Hogarth
    OP
    Real Estate Investor · fort lauderdale, FL · Member since 2009 · 82 posts · 2 votes
    16y

    Thanks for all the questions and responses; I cannot figure it out. It's ok it's not something that I want to take on right now.

    0Reply
  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    16y

    When the wrap mortgage is smaller than the underlying mortgage, a very dangerous situation occurs for the buyer. Should the seller not fullfill his obligation to make up the shortage, the buyer will be stuck with paying a higher price than negotiated.

    The underlying $345K remain a lien against the property no matter what the agreed sale price. So I can sell you my property for $100K cash, tell you I will pay off the $1,000,000 mortgage; if I do not follow thru you know own a property for which you just paid $1.1 million. your only recourse is to sue me for non performance, if I have no money your SOL.

    Private Mortgage Financing Partners, LLC
    WebsiteView Page
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  • Kevin Yeats
    Lender · Fort Pierce, FL · Member since 2009 · 825 posts · 486 votes
    16y

    Owen

    You would have to have the current lender (bank) release the lien as in a short sale.

    In this case, the bank would have to agree to release the $345,000 lien (debt) and settle for the downpayment that you make ($30,000).

    I seriously doubt that the bank will do this.

    Something is really funny with this one. I would walk away and find the next one.

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  • Owen Hogarth
    OP
    Real Estate Investor · fort lauderdale, FL · Member since 2009 · 82 posts · 2 votes
    16y

    I agree, I was thinking it over before I posted it here to make sure that I wasn't crazy. I think I can let this one pass.

    i

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