All Forum Posts by: Dana Powell

Thank you @Caroline Gerardo for your well-thought out reply.  Terrific idea to extend loan to 15 years! Here are the broker's numbers:

4.375% at 1.375 points (I can buy the lender's rate down to 4%, which I guessed--maybe too conservatively--would cost a total of 2 points)

2 points is broker fee.

$1608 PITIA ($803/month for taxes, insurance and HOA plus $805 for interest only payment) with a $1650 market rate rent which results in an acceptable 1.05 DSCR (Lender will use IO not P&I to calculate) However, my actual rent will be $3113/month, as the apartment can easily be converted into a 2-bedroom for which section 8 pays $3113/month. So I will net $1500/month ($18,000/yr).

If I go with the broker's loan and get the seller to credit me $9060, the loan cost to me is only $3272 and I have the assurance that 10 or 15 or even 40 years from now I will have the same 4% interest rate.  I had thought with $18,000/yr cash flow that it would be okay to never pay off the principal, i.e., to gain equity only from the minimal appreciation this condo would generate.  

Do I need to pay down mortgage for my retirement strategy?: I don't have any heirs to whom to leave the property. Because of my low income on paper, the only loan for which I can qualify now or in the future is an asset-based one, thus, in the future I wouldn't be able to easily access the equity through a HELOC or refi.

The only debt I will have is 5 mortgages; I live rent-free in a room in one of the 5 properties; and the section 8 guaranteed rents for 4 of those, plus the reliable short-term rents from the high-end rooming house, cover the debt service and will cash flow $70,000 (or a proportionate value as rents and expenses rise) for the next 10 years, at which time I'll be 61. After 10 years, I'll pay P&I at the same interest rate for the next 30 years; even with that increased PITIA, I will be able to live off of the cash flow comfortably. Is this a sound strategy for my current semi-retired and future retirement living? These rental properties are my only source of income and I have about $20,000 in an IRA. Pre-Covid, my plan was to live part-time overseas to stretch my U.S. rental income dollars. I have no kids or spouse so I have to make sure I have enough money to afford home health care and housekeeping to avoid being shipped to the old folks home!
I would truly appreciate everyone's feedback on this plan!

My concern with the seller financing is that asset-based lending at a favorable rate may not be available in 10 or 15 years, forcing me to sell a high cash-flowing asset.  OTOH, as @Caroline Gerardo suggests, I would likely be able to save enough to pay the loan off in full if DSCR loans are no longer offered. Wait....did I just think my way through taking @Caroline Gerardo's more succinct advice? Well, as she put it upthread, "There NEVER is a dumb question, only growing, learning, helping, and making dough."  If you've reached this far and have any feedback on my investment strategy or how to finance this particular condo, I'm so forever grateful for giving of your time.

Hey All, May I ask your advice:

I offered $302k with 20% down and 3% seller credit for a condo with an asking price of $322k. The seller countered keeping my offer price, the 20% down but with no credit at 4% interest only with a 10-year balloon.

The thing is, my broker has a 40-yr IO loan at 4% with 2 points in addition to his 2 broker points (I know popular opinion is it's best to pay down principal at some point, but I am going to net $1600/month off of the rental of this condo with IO loan--whether from seller or from institutional lender). The broker's loan will cost $12,332 and I will have impounds to pay as well.

However, I don't see where seller financing on those terms is any better than me getting my broker's loan and insisting on keeping the 3% seller credit, which I would use to pay 3 of the 4 points. I thought about asking the seller for a 3.5% interest only rate and/or for a 3-month grace period before monthly payments begin (it will be 3 months before I can lease the condo). In exchange for that grace period, I would pre-pay at settlement the mortgage payments for June-December 2022. If the seller would agree to Jan 1, 2023 as the beginning of the payment period, I would agree to prepay at settlement's 2 years of monthly payments. 10 months of no mortgage would be the equivalent of a 2.7% seller credit--on top of the lower sales price and the $12,332 savings earned by avoiding institutional loan. My realtor thinks both the 3.5% rate and the grace period ideas are "MASSIVELY" complex and would turn off the buyer.

 I know that it's no guarantee I could refinance the seller's loan in 10 years and certainly not at the 4% rate I could get right now for the next 40 years . Because of the great cashflow, I could see myself forever keeping this condo. So should I go with my broker's financing and remain firm on the 3% seller credit? My realtor thinks the buyer does not want to pay the credit and receive $20k less than asking price. I'm willing to pay up to $309k with seller credit. The property has been sitting for almost a month; my realtor believes it is overpriced.

Also, I only qualify for DSCR loans and I expect that will be the case 10 years from now when I refinance. @Caroline Gerardo, what's the likelihood that this loan product will be around in 10 years? 

@Marco Bario, those are great points to make to the seller.  Would it be a good idea to propose the seller carry back the loan at 4% IO for 40 years?  The interest is $805/month.

Any thoughts/opinions would be greatly appreciated!

I should also point out that I only qualify for DSCR loans and expect that would be the case even 10 years from now, when I would need to refi. Is it likely that loan product would be available then?

Also, an alternative offer to the seller is her full asking price of $322,000 but at a 3.5 (or lower--how much lower?) for the 10 year interest only period. 

Piggy-backing off of @Marco Morkous here:  I offered $302k with 20% down and 3% seller credit  for a condo with an asking price of $322k.  The seller countered keeping my offer price, the 20% down but with no credit at 4% interest only with a 10-year balloon.  

The thing is, my broker has a 40-yr IO loan at 4% with 2 points in addition to his 2 broker points (I know popular opinion is it's best to pay down principal at some point, but I am going to net $1600/month off of the rental of this condo with IO loan--whether from seller or from institutional lender). The broker's loan will cost $12,332 and I will have impounds to pay as well.  

However, I don't see where seller financing on those terms is any better than me getting my broker's loan and insisting on keeping the 3% seller credit, which I would use to pay 3 of the 4 points.  I thought about asking the seller for a 3.5% interest only rate and/or for a 3-month grace period before monthly payments begin (it will be 3 months before I can lease the condo).  In exchange for that grace period, I would pre-pay at settlement the mortgage payments for June-December 2022.  If the seller would agree to  Jan 1, 2023  as the beginning of the payment period, I would agree to prepay at settlement's 2 years of monthly payments.  10 months of no mortgage would be the equivalent of a 2.7% seller credit--on top of the lower sales price and the $12,332 savings earned by avoiding institutional loan.  My realtor thinks both the 3.5% rate and the grace period ideas are "MASSIVELY" complex and would turn off the buyer.  

Like @Marco Morkous, I agree that it's no guarantee I could refinance the seller's loan in 10 years and certainly not at the 4% rate I could get right now for the next 40 years . Because of the great cashflow, I could see myself forever keeping this condo. So should I  go with my broker's financing and remain firm on the 3% seller credit?  My realtor thinks the buyer does not want to pay the credit and receive $20k less than asking price.  I'm willing to pay up to $309k with seller credit.  The property has been sitting over a month, as it is overpriced.

Any thoughts/opinions would be greatly appreciated!

Hello, I am considering buying a 1 bedroom/1 ba condo and converting the living/dining area into a very large bedroom with 3 egress points. This will change the apt's configuration to 2 bedrooms, 2 hallways, a bathroom and a kitchen. Does an apartment have to have a living and/or dining area in order to meet code? Also, will an apartment without a living area pass a section 8 inspection? TIA!

@Nick Belsky,

A No-point loan is not possible since I have to pay 1% broker fee ($2250). If I pay 2 more points ($6750) to buy down the rate, it will take me 3 yrs to break even, which is acceptable to me since I intend to hold for at least 10 years.   

For DSCR-qualifying purposes, I still need the IO to get me to a 1 ratio.

Have a productive week!

Hi Bill and Alan,

Ann Sun is my broker.  annsun at sunnylendingllc.  The lender is HomeXpress.  I found them first, but they sent me some broker names since they don't deal with borrowers directly.  

https://www.homexmortgage.com/...

Thanks for all the feedback!  I spoke with a couple of you as well as the lender Russell referred.  Russell, a while back you recommended Christian Oropeza for landlord insurance policy who has since opened his own shop and he has been fantastic to work with!  And Chad, thanks for your counsel!

UPDATE: while I was engaged with you good people, my lender texted me to say she spoke with her compliance department and they WILL go over 50% tenant-occupied as long as one single entity doesn't own 20% of units. I'm happy because I really like this 40-year DSCR product. 4.25% with 3 points; 75% cash-out; 10-yr IO then 30-year amortization at same 4.25% rate. I ratified contract tonight.

Thanks again, and have a peaceful night.