Filed under: Advice Needed
Question: We need to find financing for an unusual situation. In order to avoid a partition sale, we want to buy out a 1/3 owner, using both the 1/3 being bought and the 1/3 we have as collateral, but still leaving us with only a 2/3 ownership. The property is commercial, in New Jersey, and is currently rented. The purchase price is approximately 20% less than 1/3 the appraised price, so it’s a good deal for us – almost certainly better than the results of a forced partition sale. The propery is an inheritance, and neither of us actually live in NJ.
My initial contact with Fleet indicated that they don’t do investment mortgages. So now I’m wondering where to go – how to find a reputable mortgage broker to deal with this?
Answer: I am an indiviudal investor interested in your situation. Let me know the specifics such as property value, existing liens, amount of money needed and term and direct contact info so we can discuss.Look at this from the bank’s perspective. They want colateral that can easily be turned into cash if you default on the loan and the ability to make the monthly payments.
I realize you are being intentionally vague, but you don’t present any facts that the business could be readily sold for cash. Worse, they don’t even have clear title as the other 1/3 of the business belongs to someone else. Foreclosing on the business could be a real mess if the other owner overvalues his/her 1/3 and threatens to sue if not properly compensated.
You haven’t mentioned any great cash flow that will easily repay the loan. Many businesses are just scraping by. Heck, the bank would give me money to buy General Motors tomorrow if I could convince them that I could make the loan payments. That is all they care about.
Can you get the 3rd owner to co-sign the loan? Bribery usually helps. Or threaten a scorched earth (partition sale) strategy if he won’t. In any event get a credible story together before contacting a lender. The fact that you have a money problem doesn’t mean anything to them.
January 1, 1970
Question: In relationship to my other recent note (thread titled “Investment mortgage advice needed, NJ”), I’m now looking at alternatives. One, in particular, is to take out a margin loan against my existing securities. I can currently withdraw about $150K, of which about $40K is cash the rest margin loan. I figure that if I put the full net income ($800/month after taxes) back into this at current margin rates (4.75%), then I’ll be paying down the margin loan at about 100-200/month. Once the lease on the property gets renewed (2006), I’ll be able to double those payments.
Does this seem like a reasonable alternative – keeping in mind that there’s the risk of the property going unrented (small, but possible), and obviously there’s the risk of a market crash causing a margin call (again, small but possible)
Answer: Much better alternative – you will find difficulty in obtaining conventional financing for only 2/3rds of a business/building.
If you were my client, that is what I would suggest you do.
January 1, 1970
Question: I am interested in buying a multiplex. It has 6 units and I have visited it already and is in decent shape. I am in Canada, so not sure if same as in USA, but banks will lend you only 75% on multiplexes if you do not occupy one of the units. I have the 25% to give, but I really wanted to buy 2-3 different buildings and splitting it as cash down on three rather than on one. Obviously I have not found the other two yet and prefer to take it one step at a time.
Is there anyway for me to get the bank to finance with 5-10% down? I am dealing directly with the seller with no agent, so not sure if I could be creative and benefit from that.
Any advice is greatly appreciated
Answer: We might not have as competitive a banking environment here as in the USA, but the banks and financial services companies are still very competitive. If you make the companies compete among themselves I am sure you can end up with a satisfactory arrangement. Just because interest rates are the lowest in history doesn’t mean you can’t get greedy for a little better rates. Maybe, maybe not. But would the seller consider helping you out by taking back a 2nd mortgage of 15 to 20%?? Typicly you would write this as a 30 year loan with a clause that requires you to pay the full ammount due in 5 to 10 years. If you are not going to occupy the unit, 35% is the minimum.
If you need a banker who will hear you out, reply to this message to e- mail me so I can pass you his info.
January 1, 1970
Question: My situation is that I would like to buy a condo in orlando becuase I will be taking my family there a few times a year to go to disney etc. From what I have learned, the management rents out my room and gives me 60% of the nightly rent to me.they handle everything. The hotel is in the heart of many popular parks with free shuttls to the parks.I just call a week in advance if I want to stay for free. The owner tells me that he doesnt make positive cash flow, but almost breaks even every year. he gave me the amounts he made from rent alone and that would be a small bit short of my monthly mortgage+ins, etc. The problem is he sais he bought the condo for about the same price he is selling it now after 9 years or so. I am wondering why the price of the property hasent gone up more than a few thousand in 9 years. I would expect it to go up at least 20 or 25 % in that long of a time.
Answer: the price of investment property is not based on the same measure of value that a primary house is based on. In the case of a rental unit, which is what you are looking at, the price is determined by how much rent it will support. If the price has not changed in 9 years, that means that rents have not risen in 9 years, or the vacancy rate has not risen in 9 years. The most likely reason is that there is too many units in the area, or the local tourism is down from some earlier point in time when this unit was built.
This deal almost sounds like a sucker play to me. If everything goes just right, you almost break even. If anything goes wrong, you have all the risk. But since there are only 52 weeks in a year, you have no upside to reap during a good year. The management company gets paid for any rentals that do happen, and they take none of the risk of a downturn in rentals.
In addition, there is some tax law that results in different and less favorable tax treatment on a unit that you occupy more than 2 weeks during a given tax year. If you use the unit the way that you are planning to above, you are going to miss out on the tax advantages of owning investment property.
My advice is to carefully consider the cost of staying in one of the resorts at Disney. Chances are it isn’t that much when compared to the property tax and upkeep you will pay on this condo deal.
After you make your plans to stay at a resort or local motel/hotel, then consider the pros and cons of owning property in the area as a totally seperate deal, independent of whether or not you are going to visit the Orlando area each year.
January 1, 1970
Question: I am interested in buying a multiplex. It has 6 units and I have visited it already and is in decent shape. I am in Canada, so not sure if same as in USA, but banks will lend you only 75% on multiplexes if you do not occupy one of the units. I have the 25% to give, but I really wanted to buy 2-3 different buildings and splitting it as cash down on three rather than on one. Obviously I have not found the other two yet and prefer to take it one step at a time.
Is there anyway for me to get the bank to finance with 5-10% down? I am dealing directly with the seller with no agent, so not sure if I could be creative and benefit from that.
Any advice is greatly appreciated
Answer: Banks won’t extend that much credit, and for good reason. They don’t want to be dealing with the risk of having inexperienced and undercapitalized operators overleveraging themselves in the real estate market when there is a good potential that a year of recession could easily place a 5-10% loan underwater.
With a 5-10% down payment loan, you are most certain to pay a higher interest rate as well. If you are looking for diversification of real estate assets, why don’t you buy into a partnership or real estate investment trust instead of trying to do it all yourself, concentrating all of your risk in the same local economy?
January 1, 1970
Question: We just purchased a house which was rented out. We decided to buy with the existing tenants to save the deal. Now the tenants are moving out and I need to know what I can legally deduct from their deposit. We asked for an initial walk-thru list from the seller, he said that he had never done one. We overlooked this since we were getting a good deal on the place. So, we obviously can’t deduct for a broken tile or things that the tenants are claiming was already there when they moved in. But can I deduct for carpet cleaning, general cleaning and painting the place? They have been there for 11 months (6 mo lease and then month to month) and the house is located in California. What is the definition of ‘wear and tear’? How clean should the house be when they move out? Should they legally be given the option to paint/clean themselves before we hire someone? (ie. should we tell them that we’ll be doing this stuff and deducting from their deposit?)
Also, they had an oral agreement with the seller that they will pay $50 less than what the rent on the lease was in exchange for taking care of the yard. Well, the whole grass area was yellow when we visited yesterday.
I would appreciate any advice.
Answer: I think the key sentence above is the second one..”We decided to buy with the existing tenants to save the deal.” Since that is what you decided, stick with the deal. Had you had the tenants removed, you would have had a better possibility of getting the place fixed to your standards. But that is not the direction your deal went. You have no initial walk-through, you only recently bought the house, and you bought it in an ‘as is’ condition apparently. The tenants made their deal with the previous owner, not with you. I assume he was satisfied with their tenancy, as he let them stay past their lease requirements, and made no demand for any type of payment or compensation for damages. These are the types of things that will influence a judge in court. They almost always favor the tenant in these type agreements. There would have to be blatant damages for them to go with a new landlord. I think you will soon find out what it means to buy a house ‘as is’. It means as you saw it when you bought it. If you can swing a deal with the tenants, that is the way to go…if not, then you got what you bargained for. Besides, a little elbow grease is good for the soul. Peace, The rental unit should be clean. However, without an initial move-in checklist from the seller, you will have a difficult time proving the tenants did any damage. Painting and a reasonable amount of nail holes etc is considered normal wear and tear.
Did you do a walk through at the time of purchase and make a list of deficiencies? You bought the property in the condition it was in when you signed the contract/closed the deal. You cannot, at least to the best of my knowledge go back and claim against the tenants for previous damages.
January 1, 1970
Question: I need some advice.
10 years ago I purchased a single family house (8% FHA, $115,000). Shortly after I purchased, the bottom fell out of the real-estate market. Today, houses similar to mine are selling in the neighborhood for $85,000. I still owe ~$110k on my mortgage.
None of this would normally be a problem, except now I find out my wife is due with our 4th child. I simply do not have room in my house. So, I need to move.
My problem is this: Right now, I have $15k in the bank. After looking around, I was able to find a nice house in a nice area which is listed at $165,000.
I spoke with a mortgage broker, who basically says that based upon my wife and my salaries we qualify without any problems for this house (we make $60k between us, and other than my wife’s car loan at $250/mo. we have no other bills (except the kids 
) He’s talking a 5% down, no points, no closing costs loan at 7.5% APR 30 year fixed, which sounds a little high compared to what I’ve heard but that’s okay given the closing costs are waived.
I have impeccible credit. No blemishes, nothing late, the two credit cards I have are paid in full each month. I paid my last car loan off early to save on interest.
However, there is no possible way for me to get out of the current house I am in. I can’t sell, because if I do I will have to come up with $30k — or, if I use the $15k I have now, another $15k, but then I have nothing to put as a down payment on another house. Coming up with another $30k will take me 3-4 years of solid saving, but I don’t have 3-4 years.
An option I discussed was the possibility of renting my current house. With mortgage, taxes, and insurance, my monthly payment on my current house is ~$1200. Rentals in the area go for $700-800/mo., but according to the lender they can only count 75% of that given as a “vacancy factor”. This effectively leaves me “short” $600/mo., which, when you add it to my “new” mortgage, throws my debt-ratio through the ceiling at 45%. So, the lender sez, can’t go that route, I have to sell. But I can’t sell, for the reasons given above… But, I have to move, otherwise I have to stack the kids like cordwood….
Anyway, I was wondering if anyone else out there has run into a similar problem, and if so, how did you work around it? Any recommendations on courses of action would be greatly appreciated.
Answer: It appears that you have explored the option of renting the house which may be your best option. Your mortgage broker is correct about the 75% factor leaving your ratio too high for conventional(ie conforming )loans. However, as a mortgage broker we do loans every day at ratios well above 50%. These loans bear an interest rate higher than conforming loans but allow the transaction to go forward with the plan of refinancing when circumstance improve. Ask your broker if he does “stated income” loans or subprime (b & c) loans. With good credit history you shouldn’t have a problem. If he can’t help you e-mail me and I will give you some names in your area that can. How about adding on to your current house? Just as an example, maybe you could put a $30K bedroom addition on your house, put down $15K and borrow $15K to finance it. That may be the wisest choice, as it would add the least amount to your debt. All the other alternatives I can think or have read about on this thread would just put you deeper into the hole, IMO. Also, I think it would cost you more than $30K to get out of your current house, as there would be selling costs (which you would avoid by doing an addition), even if you sell it without an agent, which may be too hard to do if your market is still depressed.
Btw, I came up with the $30K as just a guess, so I don’t know if it’s really feasible at that price. I do know that a few years ago my neighbor added a bedroom with a small bath and kitchenette to his house for that (it was for his parents). Nothing luxurious, but certainly serviceable. It was a pretty significant addition, with foundation, roofing, HVAC, etc.
January 1, 1970
Question: My deceased aunt recently left me a house with an appraised value of $57,500. However her will stipulates that her roommate may live in the house as long as she wishes. Therefore the only way for me to raise any cash from this inheritance is to obtain some sort of mortgage on the property.
My credit sucks (though NO bankruptcy), I have NO job nor recent job history, and have about 2 grand in the bank.
(1) CAN I obtain a mortgage given my above circumstances? If so, through what particular means?
(2) I will not have in-hand a title with my name on it for another 60 to 90 days. 
Has anyone any creative finacing ideas by which I could get my hands on approx. $10,000 NOW, based solely upon the future mortgaging of the property?
Thanks in advance,
Answer: Or perhaps this poster is simply a free person, whereas you are a wage slave. Think about that the next time you are stuck in traffic and gulping down coffee just to stay awake while the free people are still in bed and enjoying life. The roommate can also borrow against the life estate but, in the same vein, cannot mortgage any more than the life estate. Again, lenders would be unwilling to take a life estate as collateral. The problem is that upon the death of the roommate you suddenly become vested in full and the life estate is extinguished. If the collateral is extinguished, the mortgage goes bye-bye at the same time, leaving the bank with an unsecured note signed by someone who is now dead. However, it is common to encounter mortgages on life estates where the holder of the future estate (you) agrees to sign the mortgage as well. That way the mortgage reaches both estates and would not be extinguished on the death of the roommate.
What you could do is reverse the procedure and get a mortgage on both estates by getting the roommate to agree to sign the mortgage also. The bank should then be willing to lend. However, from what you said originally it sounds as though it may not be possible to get the roommate to agree to this. In that case, the only thing you can do is try private financing. It would take a lender who really understands real estate law to do this. Perhaps you could find a local attorney or real estate broker who deals in real loans as an investment. Expect a very high interest rate, however.
A better approach might be just to sell the remainder. Again, the buyer would have to be someone who understands real estate law.
But what if my supposition is wrong and you will be getting something other than a remainder? From your description it is possible that you will be getting full title, but subject to a tenancy at will.
Any tenancy where the tenant has a legal right of possession is considered an encumbrance on the title. The definition of “encumbrance” is anything that burdens the title and survives a transfer of the title. In other words, if you sell the property the buyer will take title subject to the tenancy at will.
Now, the same thing happens if you mortgage the property. The tenant’s (roommate’s) rights existed before the mortgage. Therefore, the mortgage is subject to the tenancy at will. If the bank forecloses, they can take the property but must let the roommate stay. As you can imagine, this pretty well nixes the idea of getting a regular mortgage loan on the property.
There is a way around this which is quite commonly used by investors who wish to refinance property that they have leased to others. All they need is a subordination agreement from the tenant. The subordination agreement is between the tenant and the bank. It says that the bank’s rights will be superior to the tenant’s rights. Now if the bank forecloses they can evict the tenant if they wish. Banks are accustomed to this so it should not be a significant problem. The problem, of course, may be in getting the roommate to agree to a subordination to your lender.
Note that regardless of what interest you are getting, you really can’t do much about borrowing against it without the roommate agreeing to sign something as well. It would take someone who understands about real estate and contract law and also likes to invest by lending money. The first thing you need to do is to contact the attorney for the estate and verify exactly what you’re getting. Will it be a remainder, or a fee title subject to a tenancy at will? Whichever it is, that is what you have to pledge as collateral. And what you have right now is the right to that interest in 60-90 days, so you can pledge that as collateral today. Any rights can be pledged as collateral, but first you have to figure out what it is you have.
Having said all the above, it might be simpler just to borrow unsecured. As an alternative, consider selling whatever interest you are going to receive. If it is full title subject to the tenancy at will, then sell that. If it is a remainder, then sell the remainder. At the right price and terms there is always a buyer for anything.
Good luck!
January 1, 1970
Question: I have offered to buy my sister’s home on contract this summer. We have a few questions, though, and would appreciate any advice.
1. How will this affect their existing mortage? 2. How will this affect their buying power?
I had to declare bankruptcy last August and there’s no way I could qualify for traditional financing right now. Our plan is to have me refinance it in Sept of 2007 (when the BK should no longer affect my borrowing power) and pay them the balance + their equity then.
Thanks in advance – please advise!
Answer: The house has to be free and clear before they can sell it to you. A contract for deed would be meaningless since they cannot give you a valid deed given the mortgage on the property. And when they move out and you move in, the loan is mostly likely callable since the loan was most likely for an owner-occupied house.
If you think that 2 years is going to be enough to clear up a bankruptcy from your credit history, then you are really optimistic. I’d expect that you will be paying about twice the interest rate as any human with good credit.
What is the hurry? Why not take advantage of the great rental market right now until you can clear up your financial mess and save up some down-payment? You could do that with a personal contract, but I suspect the best way is to transfer the title into a land trust and write a contract to change you ro the beneficiary of the trust once you’ve paid off the personal contract. Then you make the payments in a wrap-around and at some point you’ll build up enough equity and credit rating that you can refinance the whole thing cleanly.
January 1, 1970
Question: I need advice badly. I am trying to buy an older frame home in Oak Park, Illinois with asphalt siding. It is a 1&1/2 story with 3 small bedrooms, small closets, small bathroon with a half in the basement and no linen closet. But then, it has a newer roof on the house with insulation, newer energy efficient gas furnace and central air. The basement is finished and there is a summer kitchen in the basement. The owner is leaving all window treatments, appliances in both kitchens, there is an older but okay 2-car garage with opener. It’s roof was not redone. But hey, what do you “experts” think? The owner is asking $129,900 and my husband doesn’t want to pay more than $119,000. I think $122,000. Can you give some expert advice. Any and ALL will be appreciated.
Answer: This is where all the FSBO stuff goes astray. Use a Realtor to determine the comparable sales, or hire an appraiser. It is the only way to insure you are paying market value for any property. Otherwise when you go to sell you may be in for an unplesant surprise The only “Expert” would be a licensed Appraiser and he would have to perform an appraisal in order to determine the value of the property.
If you are using a real estate agent the agent can furnish raw data on comparable sales. If the agent is working for the seller (90% of the cases they are) the agent is *not* allowed to interpret or explain the data to you since it would not be in the sellers best interest.
You could pay a real estate agent to provide the data and help you interpret it for a fixed fee (as long as the agent is not representing the seller).
The most accurate method would be to pay for an appraisal. Since a lender will probably require an appraisal before loaning you any money you should use an appraiser that the lender has approved. You can call the lender and ask them for a list of their approved appraisers. A word of caution: the lender will require that the appraisal be done within a reasonable length of time before closing. Be sure to ask the lender for their requirements. Also, you need to get the sellers *written* permission to do an appraisal if the Appraiser is going to enter the home.
Remember that the Appraisal Report is your property if you order and pay for it yourself so you are not required to reveal the appraised price to anyone. And, you should instruct the Appraiser *in writing* not to discuss the Report with *anyone* unless you give written permission. This is important if the house appraises for a larger amount that you are paying for it.
The cost of an appraisal is very small compared to the price of the property.
Good luck
January 1, 1970
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