All Forum Posts by: Dion DePaoli

28 Days? Lowered the price already? WHAT?

There is a fire drill going on here I see. I don't know why you would have lowered the price already, that make zero sense to me. You're suggesting you are $15K under market or selling for a real discount of almost 30%. A minute ago I wanted to fire your realtor, now I want to fire you both. Just saying.

There is something to be said about your agent's response. "All I can do is put it in MLS". Well, that is my biggest pet peeve. How did houses sell before MLS online? Lazy agent with no buyer's list to market to and doesn't seem to want to actually do any other marketing. For me, that is simple, you're fired. The agent has the wrong attitude about their work. They don't want to be an agent, they want to be data entry, I can train a monkey to do that, enter information into MLS.

For you, I am thinking there is more to this story, what does "I wish I had time to finish flipping it" actually mean? Is that why in your first post you said you need a cash buyer, the home is incomplete and you need to finish work, so it will not appraise??

The post read like you were moving family from this house to a bigger house, now it sounds like this is an investment property you tried to fix and flip, ran out of time (from what I am not sure) and now need the money you put in out.

If that is true, house not done, need a cash buyer to appraise, 28 days is not enough marketing time at all. You need to find one investor who thinks they can finish what you didn't and still make a profit, which 30% discount may not be enough.

An unfinished house would also explain why you have had no lookers. The portion of the public that will look at that is not large.

Amit, it is true in your post it is a little ambigous on what the property designation really is. Multi-Family can mean more than a single family but is not really a distinction of where commercial and residential lines are drawn. Residential is any multi-family with less than 5 units. Commercial is the rest.

Commercial loans include recourse and nonrecourse loans. All loans look at the financial viability of the borrower and if the borrower is a company any member with 10% or more interest in the company. They do this for multiple reasons, one of which is if the property's income falls do the borrowers have the capacity to support it or will they just walk away.

Commercial borrowers and transactions are usually more sophisticated so you not hearing these questions from the commercial LO because he was just moving on to what he thought the conversation was really about. LTV and rate. Not trying to borrower $40 Million with no money. If your theory was true, anyone could borrower money as long as the property was could support the debt, not true. The lender will look for experience, the larger the project and loan get. If you have never operated a class A 400 unit property before, they are not going to be so quick to lend you money just because the DSCR is 1.5.
Personal credit, personal financials as well as company financials and credit (if any) all get examined. You are unfortuantely betting on things that you are largely misinformed about.

You will not be eligible for a bank type loan. The property is currently listed. I would have to come off market for 30 days and now that you have listed it, they will be watching to see what your doing. Any financing will be unconventional. Conventional financing considers your situation a prepayment waiting to happen, they want to put their money out longer than a couple of months to recoup the administrative costs of setting up the loan.

The bridge loan that Joel suggest would be the opition available, it is really just a private or hard money loan with no prepayment penalty. Of course those carry higher interest rates and fees.

The bigger elephant in the room is why your home, according to your description, is priced under market and not selling. Are you sure you really under market?

That is important and really the home sale issue is where you should start before you go borrow money based on the home selling and then come up short or prolong the term of the loan, etc.

If the agent listing your house is doing a poor job, fire them. Hold your agent accountable, ask to see a list of who inquired about the house. Where is he marketing the house beside MLS? Get tough, don't settle for below adequate service from the agent, they get their full fee when the house sells. Make them earn it by doing their job or find an agent who will.

Outside of borrowing money to bridge the gap, you can find homes that you like and see if the current owner is willing to let you move in as a tenant until your home sells or similiar arrangement.

What is your plan? Sell it as is? That seems like a waste of time with at best only a couple of dollars, if any, to make on the deal. Doesn't seem like there is any real money in the lot and you are overpaying for the lot, which likely is all that has value right now. The problem is the price per square in the area is so low. So at best the house is $22.3k fully repaired(?). A cheap replacement cost for this I got to think is closer to $40 or $50 per square.

I suppose the pictures you posted make the damage seem worse than it may be but I struggle to see the lighter side of the damage. Looks like you have replace truces, all the sheathing and shingles. I would not be surprised if when the tree hit the house the back corners, perhaps the back right, also has issues from the force. To some extent, I am surprised there is not a condemnation sticker on the house yet.

So the homeowner didn't have insurance, did private lender have forced place insurance on the house? If they did, that might be the angle to pursue this depending on what cost basis they insured if any. If they didn't, this is the example of why you do get it until you're paid in full.

If insurance is not present, I am not sure this is really anything to mess with that is not going to be a huge problem and headache. I am curious what some of the other folks think.

Make sure you keep an eye on taxes, since the previous folks probably are not paying those and the liens for the property slipping out of care. Those too may start to impact the financials on this deal.

I am not completely clear on what you are talking about in terms of "internet lenders". Lending is a state by state license. You can look those up.

I would be concerned about anyone offering 100% for non-owner occupied in general. Those don't really exist any more.

Keep in mind, that as a function of underwriting the loan, your source of downpayment and closing costs money will be checked for source and seasoning. Borrowing money to pay for a loan is frowned upon and may result in loan denial. You have to have an average of the money used over a period of time (months) otherwise they will not consider the funds in underwriting as proper.

I think you may not be fully aware of all of the other criteria that is going to be required for the loan which includes capital reserves, usually 6 months.

You may need to sit down with a loan officer or broker and get a better understanding of what will be looked at to see if your plan is going to work. In general right now I think it is not a high chance of success. You may want to think about who you can formally partner with to piggy back better financials, etc.

Prepayments within US mortgages, which have a penalty, are similar to those of Canada. Usually a maximum of 20% annually can be paid down on the principal without fee.

ARMs in the US have a general negative connotation to them due to the term of the mortgages here in the US. The 30 year term has contributed to that. In Canada the short term provides both Mortgagee and Mortgagor to adjust in 5 years segments for rate risk. America has more of set it and forget it mentality to that extent. ARMs in the US when rates are dropping are great. ARMs when rates rise not so great.

In America, there is incentive to carry interest due to tax ramifications. Canada doesn't offer that type of incentive which drives the populus a little more toward not carrying interest. As such, we see higher debt in America and Canada sees higher equity in general.

I'm still not seeing the utility in this, but perhaps I'm just being thick. If I am going to shell out a few thousand at close to "buy down" my interest rate from, say, 6.0% to 5.5% would I not be better off make a larger down-payment or pre-paying principal? What is the best way to incorporate "points" into a discounted cash flow analysis? Additionally, if my opportunity cost of capital is, say 6-8% I am even more skeptical of the future benefit of "buying down my interest rate".

A discount point will bring your rate down around 0.25%. That is 1.0% of the loan amount. If you borrower $100k, the fee for the point is $1,000. A $1,000 additional down payment in comparing two 30 year mortgages at 6.0% will reduce the total interest paid on the loan by about $1,158.

The same $1,000 paying the rate down will reduce the cumulative interest paid by $5,750.

You are always better off by borrower less in order to pay less interest. Using a discount point to lower the interest rate will have a greater effect than that money being applied to principal reduction though prepayment or down payment.

The DCF setup would be including all costs for points with other costs to be in period 0.

As Bill mentioned, discount points are used to bring the note rate down if qualifying is an issue. Additionally, to reap the benefit of the discount, the loan has to be held for a longer period of time. So if your opportunity cost exceeds the benefit after analysis, don't buy the down the rate.

In Canada interest is calculated semi-annually opposed to US interest being monthly. So the actual rate will be lower in Canada than in the US for the same note rate. Canadian mortgages have shorter terms with the most favorable being a 5 year term. In the US the standard term is 30 years with 15 a close second place.

That feature changes the landscape of things between US and Canadian security instruments (mortgages/deed of trust). So in the US, you will see higher closing costs on a transaction basis but in Canada you catch up to those costs due to your 5 year term. So the lifetime costs makes for a better understanding of why things are so different. American mortgages can pay to zero over 30 years, whereas a Canadian mortgage typically can not do so with a 5 year term on a 25 year amortization. So if you add up the costs of paying that obligation to zero including all the mortgage renewals required by the Canadian standard you will find, they become pretty similar.

Bill explained how the fees (origination and discount) are treated and relevance of the discount fee. The origination fee is a fee for account set-up in the US. The fee can be charged by the Lender or a Broker as a fee for service to the borrower. These fees are considered a part of the loan when charged, thus they are interest charges. A loan has two parts, principal and interest. Not all brokers or lenders charge an origination fee. In the US to help the consumer make sense of the fees and the impact on the cost of borrower we have Regulation Z which has rules around the proper easy to understand disclosure of the cost of a loan which are illustrated in the Truth In Lending Act (TILA). When you apply for the loan and sign paperwork, you will get and sign one which will show what you borrowed, how much in interest (including prepaid items and fees) and the effective interest rate that all comes to.

First, as Bill pointed out and is not made clear in your second post. If this home is Seller financing, you may have to make some accounting adjustments. The price you paid for the home, not the loan balance has more affinity to your taxation. You mention, "I funded the deal with cash from the sale of my personal home.", which I take to mean you simply purchased the house. That is different than funding a loan.

So if you bought the home for $200k and then Seller Financed it for $335k the calculation is against your $200k not the $335k. In that case, selling the loan for $240 is not a loss in simple terms.

If the difference between you capital costs and the note are reported like an Original Issue Discount, which takes that difference and treats it like unrealized interest, then this is not going to be all that straightforward. Some of that difference would have been required to be realized during your holding of the note so far. This means it may be hard to simply sit down and figure out simple math on the general taxation without involving IRS rules. (code for you need a CPA)

You mention this, "So when I sell this mortgage to a note buyer, and he pays me say 220k for it, ie the principal balance at that time, does that 220k get taxed?"

This is worded poorly as details in this unfold. In your second post, you mention the Unpaid Principal Balance (UPB) is $260k. You mention the loan is being sold at a discount to the UPB of $220k. If you ask about being taxed on your Cost Basis, no you are not, you are taxed on the gain/loss. What has arisen is that the $260k (UPB) is not your cost basis anyway, assuming you purchased the house for less than you mortgaged the house for. That is what your CPA will have to help you with.

You mention, "I am taking a 40k loss on the note because I am taking less than what the note is worth. Sorry not 30 tp clarify. Do you all think that is a good offer on the note too? 220k on a 260k note at a 4% rate?"

Your loss may not be $40k with the Seller finance situation.

The $260k loan at 3.85% sold at a 15% discount is a good deal for the Note Buyer. You might be able to sell for a little more based on the yield there but that also may have barriers with a willing buyer seeing how much you paid and stand to gain from said sale.