All Forum Posts by: Andrew Kiel

I just wanted to add this is a great event for learning and networking.  Highly recommended for new and experienced investors alike!

@Daniel Kirk @Nichiren Dinzeo 

Just want to say I fully agree with Daniel on this.  Insure well, use a strong lease.  Tucson is one of the few places in the country where a pool really is a desirable asset, especially in a class A property.  Price out the cost of getting a new one and I think you'd be sick if you decide to fill it in.

I have a mentor that often says "Balloons are for clowns".  I've come to take this advice to heart.  It's amazing how fast 5-10 years goes by and suddenly a big payment is due.

Adding to @Chris Seveney's notes above.  I'm guessing we're talking theory here but I just recently called one of my note holders on a 10 year balloon (yes, I made the mistake and didn't follow advice on more than one occasion). The note holder was more than happy to extend the note an additional 5 years as I've always made timely payments.  In fact, he didn't want me to pay it off.

The fact is, if you don't pay off the note, the seller has the option to start foreclosure proceedings.

Here's my answer that I think is correct, but please correct me if not: At the time of the balloon payment, the investor goes to a bank and applies for a loan on the remainder of that balloon payment. That way, the investor doesn't necessarily have to pay that amount up front, but can continue to use the revenue from the property to pay the loan.

Yes, you can of course get a new bank loan and pay off the balloon, but that equals risk.  You may be stuck with a much higher rate at the time of the balloon.  The property may not have the needed equity, personal credit issues, etc, etc...

Do your best to avoid balloon payments at all costs - really talk to your seller about this in detail as to why they may want one.  I've seen many colleagues that have offered balloon payments to a seller when it wasn't even needed or requested.  

If you do move forward with a balloon payment - yes, sometimes the deal is just that good - have a solid exit (refinance or sale) strategy.  And always best to take care of the payment early so as not to get into a foreclosure mess.

@Account Closed I concur with Billy S above assuming one thing.  Make sure you actually get and record the deed through a reputable title company or attorney (depending on your state).  I've seen some really messed up sub-to deals usually because someone was listening to some bad advice and using some kind of unrecorded transaction such as a trust.

Congratulations on your first of hopefully many!

My personal experience in my market is I can generally get up to a 10% price premium for good owner / existing financing.  

$225k of equity or about 50% down is a potential pitfall to this - it will lock out many buyers as this is a big entry fee and it makes for a far less attractive return on investment (cash on cash return).

If you allow the buyer to take the property subject to your existing financing (keep in mind this is different than a true assumption) you will still be on the loan and tied to the property in that way.  

A better way might be to do a lower down payment and "wrap" your existing loan with a new loan for the buyer.  IE: What if you sell for $475k with $75k down and provide the buyer with 7% financing on the remaining $400k?  Your P&I on $225k at 3.625 should be around $1026 per month.  Your new payment received in this scenario would be $2661.

I'll start by looking at this in the most simple terms - return on equity.  I think the first question (of many) is where will my $200k of equity make the most return?  11% ROE is mentioned as the current number and you can likely anticipate the new ROE after the interest rate adjusts in mid 2024.

Can I find a better investment for this equity that will return significantly more than it's currently getting?  

Unless you can clearly answer yes to this, I personally don't think a cash out refi would be a good scenario.  If you're going to park the money in CD's or Treasuries in anticipation of a great investment opportunity, sure.  If you're pulling cash out just for the sake of putting it into lower paying investments, that seems counterintuitive.

I think the better point here is IF you decide to give the seller a copy of your credit report, you can pull it yourself (annualcreditreport.com) for free and without a hit to your credit score.  The free report does not give credit scores but the point you're tying to make is that you pay your bills timely.

@Jim Vani I would start with your local title companies, I suspect several of them would offer account servicing options.  One that we use locally in Arizona is Stewart Title and I believe they also have a presence in Illinois.

If you're going to do a "subject to" deal, do a subject to deal. Don't do a balloon and don't do the funny business with the deeds. First, find a title agent/company willing to wrap an FHA loan - it's possible but difficult. If you can't find a title company, you'll have to self-close the property without title insurance (which can be a bit scary). If you're going to do this type of deal, just make sure you're comfortable with the possibility the loan may get called and you could have to refinance. If this is an issue, don't do the deal. I've done many FHA subject-to type transactions and they are fantastic, if you and the seller are willing to accept the risks. There is no work around to the due on sale for an FHA loan. More importantly, in my opinion, get the deed now. I've seen far worse things when instruments like option agreements are used.