Needing Advice on Sellers Request for a Cash Deal

8 Replies

Hello Fellow BP'ers,

I'd like to reach out for advice on a potential deal I have found. I have ran the numbers and it appears that this is a good deal. This is Two Townhomes sold together as a DUPLEX. Each unit is 2 bed/1.5 bath and attached garages on separate parcels that has recently been remodeled. The pictures both inside and out look very good so I have not accounted for any initial repairs as it has recently been remodeled and it is currently occupied.

Asking Price: 275000

Monthly Income:
$2,500.00
Monthly Expenses:
$2,054.40
Monthly Cashflow:
$445.60
Vacancy (8.3%):$207.50Repairs:$125.00
CapEx:$200.00Water & Sewer:$87.00
Insurance:$133.00P&I:$987.90
Property Taxes:$314.00

Problem is they are asking for cash sale only and I fall just barely short of having enough to pull this off and still have a comfortable reserve. This is in the Seattle market and is a very competitive market so there will likely be multiple cash offer bids.

My question is:

  1. Is this a good deal?
  2. Should I be looking for partners or should I be looking for hard money lender's to get the deal done and then do a cash out refinance after I close?
  3. Any recommendations for good hard money lenders in the Seattle area?
  4. Do I need to talk to my banker to explain the deal and ask about a cash out refinance without a seasoning period?

I have been pre-approved for my loan and have excellent credit with a very low debt to income ratio so I wouldn't think getting approval shouldn't be a problem with hard lenders or closing on my pre-approved loan. Any tips on ensuring that my bid is accepted, other than escalation clause, short closing, quick inspection period, etc...

Not really sure where I should be looking to move on this deal. I have never worked with hard money lenders so not really sure how to proceed in that direction.

Cheers,

Ted

FYI, These expenses are taking into account a 30 year fixed, 20% down 3.5% financed loan

Cheers,

Ted

The numbers are not the worst I have seen but if there is competition, as you suggest, and multiple bids take the price higher then it is no longer worth the investment.

You sound way too eager. That is always a mistake in investing.

I would not approach any property so eager to have to compromise.  Make your standard offer, what ever you would normally do, if it doesn't work there will always be another one tomorrow.

@Ted Klein

answering your questions:

  1. Is this a good deal?  Yeah, that looks pretty good
  2. Should I be looking for partners or should I be looking for hard money lenders to get the deal done and then do a cash out refinance after I close?  If you can't get conventional financing to purchase the property, you will not be able to refinance.  Underwriting guidelines are pretty much the same 
  3. Any recommendations for good hard money lenders in the Seattle area?  My personal favorite is Eastside funding
  4. Do I need to talk to my banker to explain the deal and ask about a cash out refinance without a seasoning period?  I would ask several bankers and loan officers that same question

Even though it's a financed deal you could make the offer not contingent on getting financing.  This way, it looks like it is a "cash" offer with standard contingencies, like an inspection.  Most people, including real estate agents think that if the property is being financed that the financing addendum must also be attached.  This is only correct if your offer is contingent on your ability to get such financing.  If your offer is not contingent on your ability to get financing, then you do not need the financing addendum.  To the untrained eye, offers absent a financing addendum appeared to be "cash."  

Hard money lenders don't care about your credit rating or debt to income ratio.  The only care about skin in the game.  But for the vast majority of buy and holds, hard money is just too expensive.

One question though, it looks like taxes are a little on the pricier side of things coming in at about $3700 per year.  Most homes that have tax bills like that are at least $400,000, very often a lot more.  If you are able to get it for $275,000, I would double check that remodel was done correctly, permits were pulled, etc.

One last thing, what do you know about the most important number of all, the gross monthly rent?  Are there lease agreements in place and if so when do they expire?  Has anyone ever been late?  What is the amount for security and/or damage deposit?

Keep in mind that you could have the very best property/investment on paper but it can be shattered in an instant if you have a bad tenant.

Thanks for the reply @Patrick Britton, I have searched the county records and can't find that any permits were pulled. What impact does this have on the deal?
In regards to item 2 above: I am pre-approved for the conventional financing just wasn't sure how to get around the sellers request for a cash sale.

The question about using a hard money lender was to get around the sellers cash sale request thinking that I could get a short term hard money loan to close the deal then do a cashout refi to a conventional mortgage. I like the idea of making the offer not contingent on getting financed. Since I am already pre-approved for well over the asking price, this shouldn't be a problem should it?

Yeah, not sure why the taxes are so high, I had already checked the county site and verified that was the amount.

I have a request in for the rent rolls and the lease information, payment history, security deposits etc... Hopefully this info comes back with good news.

Thanks for the advice!

I'd refigure your numbers with a higher interest rate. I assume this is going to be an investment property for you, so I believe you won't get financing for 3.5% on investment properties. You said you were pre-approved, is that just for a mortgage or for an investment property mortgage? This could change you numbers significantly! Also figure the deal with Mard money interest rates as well because these rates could put you in the red.

@Mike Hanneman

I specifically spoke to my banker about it being investment property and the 3.5% rate with 20% down is what I was quoted on the pre-approval. I even inquired about how many investment loans I could obtain with them and was quoted 4 loans as expected. Just to be sure, I applied to two other bankers as well and each one quoted me the same rates. I have no debt and an 840+ fico, so getting the low rate wasn't a problem.

@Patrick Britton

Well after doing my due diligence, I have determined that maybe it wasn't such a good deal after all. The property is technically a condominium. I was told that Fannie Mae conventional financing guidelines will not allow more than 50% of the units be owned by one individual. Additionally, since both units share one water line and meter. Units can't be sold individually without running another water main and installing a water meter. The owner received estimates on this project (around $10,000).

Just keep looking now...

@Ted Klein yikes, a condominium?  those should be avoided like the plague.  Sorry to hear this.  

@Ted Klein those kind of loan terms for an investment property are really good. If I were you I'd have no issue using a HML to close the deal, then refi out as soon as you could. Keep looking you'll find a deal in no time.

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