All Forum Posts by: Jon Holdman

F&F = friends and family.

Lending terms for this sort of loan vary a lot.   Based on some investigation I did a while back I'd think you could find 20% down.  Your payment is going to be determined by the loan amount, interest rate and amortization period.  The longer the amortization period, the lower the payment.  The lower the payment the better your cash flow.  Freddie Mac offers "small balance" loans that have good terms, but the minimum loan amount is $1 million.  Your best bet would be to start calling local banks and credit unions and find some that will do this loan in your area.

An ARM leaves you vulnerable to future rate hikes that may hurt your cash flow. Balloons are also common for this sort of loan. Such as "20 year amortization, due in 5 years" loan. That means the payment is calculated as if this was a 20 year loan. But, after 5 years you have to pay the full remaining balance. At that time you would need to refinance, get the current lender to extend the loan or sell.

I'd expect expenses to be more like $3000 /month, knowing nothing more than what you wrote.  That's based on the "50% rule" which says that 50% of gross market rents will go to expenses, capital (e.g., roofs), and vacancy.  That rule is derived from large amounts of apartment data, so is applicable to your deal.  There may be factors, such as deferred maintenance, that would make it larger.  Risky to assume expenses will be much less, though they may be in some years.  Its just a rule of thumb, though.  You should be the APOD (annual property operating data) for this property from the seller or their broker and see what its really been recently.  Take care, though.  If its a lot lower that may mean the seller has been milking the  property and you will have a lot of work to do.  If its high there may be an opportunity to improve the property by reducing expenses.

$2000 a month in expenses is probably low.  Even so, looks like a good deal from rent vs. price.

Is it occupied?  If not, you'll have a significant lease up period.  You need to account for the lost rent during this period.  If it is occupied you need to use current rent data.

Does it need any rehab?  If its not occupied, it probably does.  Even if it is occupied it will probably need work.

This is something of a no-mans land for lending. Too small to be of interest to a big commercial lender. Too many units for any sort of conventional financing. So talk to small local banks and credit unions. It won't be 30 year fixed financing, if that's what you're assuming. Maybe 15 or 20 year fixed and fully amortized, though that will command a higher interest rate. More likely a balloon or ARM loan.

They may well have know.  They may well have misrepresented the situation.  You still may have no recourse other than to sue.  Even then you may not win.  You need to talk to an attorney.

I would seek advice from an attorney.

Not necessarily.  As @Russell Brazil says, the rules for commercial transactions are much more relaxed than for residential transactions.  You really must take much more care in a deal like this than if you were buying a house.  Did your lender not require an environmental study?  It might have caught something like this.

Verbal representations are worth the paper they're written on.  Which is to say, absolutely nothing.

@Jeremy Brizendine use the Do It Yourself forum.

Look into the . This allows some rehab money to be included in the loan. The regular FHA loan program has stringent condition requirements and they do detailed inspections. Its not really applicable for a house that needs any work.

Welcome to the site.  We're glad to have you.

The six month seasoning requirement for doing a refinance using a new appraisal is pretty common.  If you contact enough lenders, you might find someone who would do that sooner.  But many lenders do impose this requirement.  You're also going to have a hard time refinancing if its listed for sale.  You may be required to take it off the market to get the refi done.  And the lender will use your last listed price as a maximum upper bound on the value.

If your intention is to sell, the best answer is to get it priced right to move quickly.  That's always the best strategy for selling anyway.

DOS = due on sale.

After all the shenanigans they have pulled why in the world would you deal with Wells Fargo?

Specific to the lease and your local laws.  You should discuss this sort of thing with your landlord/tenant attorney to be sure you understand the exact laws in your area.  I think its a very worth while investment to spend $200 to have an attorney review your lease and advise you about fine points like this.

The term "landlord insurance" is normally used in the same context as "homeowner's insurance".  It does usually have loss of rent coverage that will cover the rent after a fire or other covered peril.  And it will actually pay a claim on a rental where filing a claim under a homeowners policy that is really rented may results in a denial.  You absolutely want that for rentals.

But this sounds like some other sort of insurance that at least claims to cover tenant-induced problems like an eviction.  I would agree this seems like a bad deal.  Insurance in general is a bad deal.  If it wasn't, it wouldn't exist.  Insurance companies make a profit.  That means insurance, like casino gambling, is a negative expectation bet.  The house wins, in the long term.  You buy insurance for the short term, though.  Specifically, some big loss that you cannot cover yourself.  You probably cannot cover the house burning down out of pocket.  Or wrecking your car.  But, as a landlord, you certainly want to be in a position to cover the costs and loss of rent associated with an eviction.