All Forum Posts by: James C.

Daren,

Not too bad in my book... my first hard money deal was a bit less in the bank, but it was over 10yrs ago. Interest rate was about 14% if I recall, and my credit score didn't matter. The LTC was sub 60% for the deal I was doing.

HML looks at the asset more closely than the borrower, as long as the borrower has the talent and knowledge to do the deal.

Good Luck!

Jim

Arlen,

As a parent I am in complete agreement with you. I paid for my own university degrees by working my tail off during school. Having students pay for their own school (especially with performing property) is excellent! The more you expose your kids to the realities of life, the better they will be in the long run.

As a teacher, we need more of this sort of thing. Parents need to be teaching their kids and giving them reality about hard work, studying. Putting them in bubble wrap, watching TV and being scared of everything is making them feel entitled, lazy and arrogant. 

+1M for Arlen and every parent like him!

Thank you

Jim

Donnel,

Ok... here goes... I haven't done this in a while, so there may be a better way to do this.

You need to calculate two ratios, The "Front Ratio" and the "Back Ratio". Simply put the "Front Ratio" (FR) is how much your housing expenses cost vs your income. The "Back Ratio" (BR) is how much of your income is take up with all your debt. Generally FR should not be more than 28%, and the back ratio 36%. FHA limits are a little higher 29%/41%.

So... from your narrative your income is 20,000 per year (we'll ignore the employment gaps for the moment) so that is $1,667 per month. So, $1,667 * .28 = $466.67 available for a total monthly payment (conventional) or $1,667 *.29 = $483.33 FHA.

Now your BR is more difficult to calculate given what you have indicated, but I'll take the 950 number as all debt, so $1,667 *..36 = 600.12 and $1667 * .41 = 683.47 minus the house loans (600.12-466.67 = 133.45 and 683.47-483.33 = 200.14. Those two numbers indicate the monthly payment of all of your non mortgage debt you can carry. With 35K in student loans (they count even if they are in forbearance) and any credit card debt you are over 200/mo in payments, and the underwriters will say "no" to the loan. Also at 120K you are scraping the minimum cash in for FHA.

The underwriters may not count the income because it's not actual, so you need to support the mortgage on your own, which is not possible given your current situation.

Your employment history is not helping either, but the underwriters could accept your explanation and be ok with it.

Best option: get the 35K job, pay down debt (See the "Afford Anything" blog, I get nothing for the plug), build your down payment, and keep hunting around. 

Other Options: 

Pay off all your debt, or have a family member "gift" you the money (CHECK IRS RULES HERE)

Have a co-signer on the deal.

JV with someone

lease purchase

Hard Money (ABSOLUTE LAST RESORT, they don't like lending on OO properties)

Probably a couple more ideas around...

Good Luck!

Jim

Roman, 

As I re-read my post, I'm not being clear.  I am using the MLA agreement with option to to purchase as an aquisitions strategy. I plan on repositioning a property so that I can purchase it. 

The idea is to get the property under control with the MLA, then exercise the option. 

Because I don't have a "true" ownership position, I.e. I'm not on the deed,  I can't "refinance" the property to take the seller out. I don't wish to (or have the means) to put down 20%+ cash to do an outright purchase. 

Since I have built the value of the property to where the purchase price is below 80% of the current value,  how do I take the seller out with a loan?

Does that clear things up?

Thank you, 

Jim 

Scott, 

Found the note you mentioned.   Non conforming property issue.

If you want to discuss further PM me. I'm in Tokyo time zone, just FYI. 

Good luck,

Jim 

Scott,

Some things come to mind:

No seasoning.

Borrower has blemishes on the credit report/low credit score. (yes, <30% back end is good, but could be a credit report issue)

Lender is over non conforming covenants on line, and this is a non conforming loan for one reason or another (because his bank says it is and won't take it on the line). If this is the case, this loan could be the runt of the litter, and the lender wants to keep his bigger non-conforming loans on the line so that he can sell them for 104% when they are seasoned. 

Underwriting made a mistake in documentation and secondary market rejected it (BIG ding to the underwriting department).

Property is non-conforming in some way.

Loan balance too low for secondary buyer.

Secondary buyer flaked at the last minute (unlikely, but possible).

Minor title issue that secondary market/buyer doesn't like.

The note could have been structured with that sale price in mind, and written to sell it quickly.

If you can... ask why... it never hurts, if they answer, and it's nothing to do with the note quality, then you have it (assuming you can verify). If it does affect the note quality... then it's good to know and you can price accordingly.

Best advice, due your due diligence, double check it, and if it still looks good buy it!

Good Luck!

Jim

All,

I am considering doing some MLA's on under performing commercial properties, mostly multi-family buildings, >10 units.

Is it possible to get a loan on a property for which I have a MLA, and have been operating successfully for over 12 months? 

I am assuming that the current value of the building will be greater than 80% of the loan, and I would not be looking to take cash out. I would prefer no personal guarantees, but that would be flexible.

How would you suggest going about getting the loan? What types of loans might be available for this? Would there be any modifications to the MLA that would help (i.e. getting added to the DOT)?

Anything I have not asked or considered that I should?

Thanks,

Jim

Patrick,

I redid this to make it easier to read:

Monthly Income: $2,875.00

Monthly Expenses: $2,468.65

Monthly Cash Flow: $406.35

Pro Forma Cap Rate: 8.84%

NOI: $18,485.75

Total Cash Needed:$0.00

Cash on Cash ROI: Inf%

Purchase Cap Rate: 9.99%

Property Information Purchase Price: $185,000.00

Purchase Closing Costs: $5,000.00

Estimated Repair Costs: $2,000.00

Total Cost of Project: $192,000.00

After Repair Value $209,000.00

Down Payment: $0

Loan Amount: $193,920.00

Loan Points: $1,920.00

Loan Fees:

Amortized Over: 30 years

Loan Interest Rate: 5.770%

Monthly P&I: $1,134.13

A few red flags for me:

1) PRO FORMA CAP RATE = made up numbers

2) I see $406.35/mo net and an NOI of over 18K? If I take the P&I out of the expenses... I get 1,334.42 x12 = 16K... so the numbers don't tie out (read they are made up, or the person doing them doesn't quite know what they are doing)

At this point... I'd be looking at my due diligence, and probably headed for another deal. This one doesn't pass the sniff test for me.

Good luck!

Jim

Wayne,

Your total rents: $1,775

Ok.. 1% test: 153,000 *.01 = $1,530 < $1,775 so ok there. 50% test: $1,775/2 = 887.50 * 12 = $10,650/0.08 = $133,125, which is a fail. Moving rents to 950 for the living unit rentals makes the 1% still work, and the 50% test becomes $2,250/2 = 1,125*12 = $13,500/0.08 makes it $168,750, so it barely passes.

So, I ran the APOD (not exhaustive on a 2U+extra), see the below.

This is only one approach, and it may all make sense for what you are trying to do, but it should give you a starting place to figure out what you might want to do. 

For me, this is a break even/slight loss deal.

Please let me know if you have questions, or need additional information.

Thank you,

Jim

Moving the rents to 950, dropping reserves to 5% each, along with the recoup % to 10% helps:

Scott,

Also, it sounds like the lot, due to having frontage on two roads and two sets of utility hookups could be divided or carry two buildings.

Ok... I know you are thinking sale but consider (make this your first REI):

Ground Lease: Monthly income from leasing the land, the company leasing owns the building, or at the end of the lease you could "buy" the building.

Build to Suit/Buy or Lease: You can build a building for the company and sell them the whole package at a profit, or have the company lease it from you.

Seller financing - You can offer financing on the sale of the land.

If you still own the land, you can use it as collateral for other real estate deals.

Good Luck,

Jim