Help on buying student apt in Puerto Rico (Financing, etc)

9 Replies

Hello BP!

My mom owns a student rental in Mayaguez, Puerto Rico, walking distance (5 minutes) to the university (UPRM). I lived in it while I was a student and my mom is now considering selling the apartment. I have a small (extra small) emotional attachment to the apartment, but a strong business attachment to it. I graduated 8 years ago and it has only been vacant 2 months, and the numbers have been favorable for my mom. The problem is, she can't refinance it and reduce her rate (hers is around 8%), so she's trying to sell it.

My gut tells me to snatch it from her and put a prop manager in place to manage it and keep receiving those checks. It's presently vacant and listed for rent, not for sale yet. My question his, how can I go about buying it? I have called several lenders in PR and they have told me they are not so welcoming to foreign investors. The mortgage is due on sale (I checked) so an assumption or owner financing is out of the question. Anyone with experience on getting loans in PR? I have yet to find a nationwide lender that includes PR. All other apts in the building are listed between 92 and 100k. My mom says she would do the lower end of that range for me, so as to not devalue the other apts in the building.

It's a 2Br, 1Ba, apt that market rents for $750. I would like to do the least out-of-pocket I can. I just dont think it's wise to sell it. 80% of people who go to this university is from out of town, and this university doesn't provide student housing unless you are an athlete, so the market will always be there as long as the university is there. It's one of the safest buildings on the street, and one of only 5 with off-street parking spots.

Help? 

Thanks!

You dont need a bank or a private lender. You can buy it from your mom and have her hold the financing.   All you need is an agreement with your mom for monthly payments at a rate that wont kill you, and a competant real estate attorney.

Structure the purchase from your mom as X dollars per month over Y months.   The deal is whatever she agrees to.

To your success

Josh

@Josh Caldwell:

Wouldn't this trigger the due on sale? Or is this why you suggest the competent attorney? I want it to be smooth and make sure that if anything happens to my mom (God forbid), that there are no issues with the apt either. I would be fine assuming her rate and payments (it still cashflows) but I want to make sure I'm not doing any legal shadiness

There is a lot of discussion about "due on sale" on the website here, just do some searching and see what you can find. Yes, that clause is in there to protect the bank from shady things, however, as you will find, it is extremely rare for the bank to call it due unless there is a reason - i.e. payments stop coming in.

Is your mom's mortgage from a U.S. Bank?

Depending on what the remaining balance on the loan is, do you have enough capital to cover the balance if the bank actually did call the note due?

Originally posted by @Josh Caldwell :

You dont need a bank or a private lender. You can buy it from your mom and have her hold the financing.   All you need is an agreement with your mom for monthly payments at a rate that wont kill you, and a competant real estate attorney.

Structure the purchase from your mom as X dollars per month over Y months.   The deal is whatever she agrees to.

To your success

Josh

No, that won't work. There is a mortgage in place with a DOS clause.

Saludos @Doel Gonzalez :

A fellow Colegial here (ICOM '03).

What banks did you call in PR that won't lend to you? First of all, you are not a foreign investor. Puerto Rico is a territory of the U.S. and for all practical purposes it is treated like a state. I will suggest that you call the large PR banks (Popular, Oriental, FirstBank) to check. If you can find the time, it is best to go in person. In addition, check with the Savings & Loans ("cooperativas") since they are usually more flexible.

As to the DOS clause, it is enforceable, but as others have said the risk of it being enforced is minimal. However, there is a risk and the bank has the right (and the resources) to make your life miserable. Plus, you can get less than 8% financing right now.

If that doesn't work, you need to consult with an attorney. Some sub-optimal options come to mind, such as a long-term purchase-option which can be recorded in the property registry.

You can do like I said and not trigger a due on sale caluse. There are two ways around that. One you can purchase on a land contract or lease option and not transfer the title until you own it free and clear, or you can place the property into a trust, actually your mother can do this as a matter of estate planning. the bank has no say in that and it doesnt trigger DOS. She can appoint your trustee, and you can can change the benificiary of that trust after a few months.

@Victor Chico - I am ICOM '08! Small world I guess. I first called FirstBank and they gave me a beautiful runaround about having a narrow DTI, and that there were extra taxes for a non-resident investor and that they would have difficulty lending to me because of that. I think it's ludicrous because I have two other investment properties and have had them for over a year each and they wanted to count it towards my DTI... as if I didn't receive any income from them.... ugh. Popular and I don't get along since they "lost" an account of mine but I can try them anyway. I had called Doral but, well, they don't exist anymore, but they were the only ones to give me a sliver of hope.

Going to PR isn't easy without having to burn vacation days and I would like to go down there just to sign whenever needed at closing. In any case, I'll try Popular and Oriental.

Victor, do you own any properties on the island?

Hi Doel,

It's been some time now. We're you able to obtain financing? 

Hello,

I did not, unfortunately. My mom still has the apartment, rented. She still asks me about getting it off her hands but I have yet to find an investor-favorable lender willing to help. Part of the problem is she doesn't own it outright yet, so having her owner-finance is not really an option. Thanks!

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Get the Ultimate Beginner's Guide

Sign up today to receive the popular eBook for free!