We are in the process of closing on a short sale 3-plex. Hopefully we will have an approval by the end of September. My question now is how to correctly define the loan terms for our private money loan. I know there are an infinite number of ways to define terms but I'm just looking for a "what would you do" in this case in regards to loan terms / structure.
Here is the what and why. I left out all the number because I didn't think we need them all to define loan terms (However the length and interest rate would effect this. We can assume here that the numbers work and the property provides cash flow)
Purchase Price: $127,000
We are proceeding with private money due to a foreclosure that will be at the 7 year mark in less than 2 years.
My goal would be to purchase this property with private funding and then refi when we are outside of our 7 year foreclosure mark.
Possible loan terms at this time would be 100% financing / 0 down / 30 year note / 6%-7%
Short Term Goal 2-5 Years : To be able to refi this property with another lender, remove equity, and purchase a second property as soon as possible.
Thank you in advance.
Is the property at its potential or do you have some room (& effort) to improve performance?
Run your numbers to ensure that zero down payment is an appropriate course for your lender and yourself.
Is your private lender insisting on principal repayment? If so, do they require a fixed schedule or would they settle for a percentage per year? Consider negotiating an interest only note which allows for prepayment (with a cap for year one, but no prepayment penalty for subsequent years ... your lender needs to ensure s/he earns enough to justify the effort of subscribing to your mortgage)
If your goal is to refinance in 2-5 years, the negotiate your private mortgage to a term of 2 or 3 years with the possibility of annual renewal up to 5-years. You can still amortize over 30 years.
The key is to put your lender first. Yes, you want the deal to be good for you, but you want it to be better for your lender.
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