how do I buy this 44 unit with the least money possible?

Question

Seller bought this for almost $4 mil @ the height of the market a few years ago. It's annual NOI today is @ 120,285 so @ a 10 cap, I've valued it @ $1,202,850. They'd walk away but don't want to ruin their credit so they've agreed to let me help them with a short sale AND purchase it myself if I'd like to. They are fine with paying the 1099 they'll get hit with after the sale.

With a deal like this, I'm wondering how many other ways I could try to use "creative financing" to purchase it?

At first I thought I could perhaps take over payments or do a mortgage wrap but they are BIG TIME negative. The mortgage, tax and insur is about 16k per month (that's correct, they've been unbelievably negative for a few years; I have no idea why they still pay it). Another idea was to see how high the DSCR would have to be with certain banks for them to lend me 90-95% of the loan (yes I've seen this). That is sadly the extent of my creativity so I thought I'd post it here and let you guys go at it.

Feel free to ask questions - thanks!

Joel Owens · Answer

"They'd walk away but don't want to ruin their credit so they've agreed to let me help them with a short sale AND purchase it myself if I'd like to."

A short sale is not going to ding their credit how??

Who owns this loan?? A local ,regional,national bank?? The FDIC??

Is this a CMBS security in a pool?? How many tranches of debt and additional liens are attached to this property??

If it's a bank that owns the loan it will make a difference if they originated the loan,what size of bank they are,how much of that type of loan (asset class) they have on the books,if they bought the loan from another bank,if they bought the loan from a FDIC loss share agreement etc.

There are MANY factors that go into helping a seller with their property.Is there a recourse loan or non recourse?? Is their a personal guarantee?? Is this property cross collateralized with other properties the seller owns?  Are there "bad boy" carve outs in the loan agreement (filing bankrupcty, taking rents and not paying debt service,etc.).

Is there a corporate guarantee instead and not a personal one??

Tony you have to know WHO you are dealing with on this loan to know HOW to get started.It sounds like you need to work on learning this part a little more.

Might want to bring in someone more experienced on this deal.

Good Luck

Kevin Yeats · Answer

I have to agree with several other comments on the LTVs.

My lenders still require significant downpayments (contributions) from the buyer - usually 25% .... sometimes more.

We have helped some buyers by providing an unsecured line of credit that the buyers use to reduce their out of pocket downpayment.

Tony Nguyen · Answer

I see  what you mean Joel, youre right. After I speak to the bank and know the options, I'll post it here so every knows whats going on. thanks again.

Joel Owens · Answer

Tony was the property you short sold in 2008 your house or a commercial property??

Re-qualifying for residential loans versus commercial is apples and oranges.

Until you know what type of loan this is and what is involved you will not know options.

Tony Nguyen · Answer

Thanks for the reply Steve. Once I dive deeper into the property, I'll keep you all posted w the DSCR, lender info, etc

Steve Babiak · Answer

I'm somewhat baffled at the original loan.  Your posts indicate that they have been in negative cash flow position, so some lender never paid close attention to the DSCR in the first place.

Good luck on the 5% to 10% down - I can imagine a steep DSCR to get that.  I think Johnny has given some more realistic numbers, so expect to have to come up with a higher down - unless you can get really high DSCR performance from this property.

Tony Nguyen · Answer

Johnny - i actually did see a deal go through with MM Capital Group that was 0 down, apartment. I'll chat with you about it when I see you. can you email me pls? let's get together. I will keep this thread updated about the loan.

Don - 9% is more realistic in B class properties in the area where this 44 unit is at. I've seen lending institutions take hits at that level before. Will this one in particular, I don't know. That answer will be handled once I start speaking to them etc. I don't see why not though if the borrower is in hardship. If his business has suffered and their BPO and appraisal says the property is worth X, why would they say no to the short sale? To us, it seems like a no brainer for them to approve it but of course, I've seen the decision go the other way which blows my mind ever time.

Don Konipol · Answer

Is a 10 cap realistic in your area?  In Houston for a class B property a 7-8 cap is the going rate.  If you think its only worth $1.2 million, is trying to get a lending institution to take a 60% hit realistic?  Or is waiting for foreclosure sale or REO sale a better bet?

Johnny P. · Answer

Hey Tony, I was in your office last week, maybe next time I'll run into you.

I'm excited to hear more about the actual loan.  Keep us updated once you talk to the bank.

Tony, are you really planning getting a loan with 5-10% down... Best of Luck.  I don't think this is realistic.  Most of the banks are asking 25-35% for assets in this area.  Also, do you expect the bank to sell the property directly to you without exposing it to the entire market?  They want to be sure they are getting as much as possible before taking a loss like that.

Its nice to see that you are already trying to get into bigger apt deals, I hope things contiune to go well for you.

Tony Nguyen · Answer

Thanks for the reply Joel. I haven't dug into that yet as they are working out one final thing before giving me the authorization to speak to the bank. Once I speak to the bank, I'll have a better picture of what type of loan it is and how it'll effect them and help point them in the right direction.

A short sale will be better then a foreclosure in this manner. With a short sale, in three years with current guidelines, you can get a loan again and life will be back to normal. I know because I short sold a property in '08. score went from 7xx to about 550, interest rates on credit cards went up to the mid to high 20s and everything else. However in 2011, life was normal again. Got mortgages, credit cards and my score is back up in the 700s. With a foreclosure, it takes much longer to recover from what I've read, however I don't know the exact numbers on that since I haven't been through it.

Anyway, again thanks for the bringing up the questions that need to be answered. I'll use it as a guideline when speaking to the bank.

how do I buy this 44 unit with the least money possible?

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