Question for you guru's.

I am a twenty four year old guy, making $70k a year. I have saved 50k in liquid assets (cash, stocks). Never had any problems with my credit but don't have a huge credit history.

I have the opportunity to purchase a mixed-use property from a family member who is aging.
The piece is a 20x100 lot.. store (real estate company.. heh) with a small bungalo apartment in the back.
Rent roll: 1800 a month for store (4 years left on 5 year lease), 500 month for bungalo (year lease). The owner is offering it to me for 250k flat. The piece was appraised at over 350k. Figuring 2700 taxes, 1800 insurance, 800 water/sewer.

Here's my problem. I'm twenty four. I don't own a home yet. I have zero debt.. no vehicle. I live in a family owned house. Made some very few inquiries and local banks basically are asking for 25% down. That's 50k. I probably wouldn't even have enough left over for food or closing costs.

Is there any possible way you guys can come up with a solution where I could put less than 25% down, or get a second mortgage. The seller isn't going to hold another mortgage or anything.. the point is that he wants the 250k now. I want to jump on this or it will be put on the open market. I have a few months to make a decision.. probably till this summer.

I'm racking my brain.. what do you guys think? Am I jumping into the game too early or should I not let this one pass me up..
Larry

It is possible, but not through a bank lender. You will need a non-bank lender to give you more than 80% LTV.

I have not run the numbers, but they seem ok. You might want to play around with the spreadsheet located at http://www.loanuniverse.com/sensitivity.html

Other than a non-bank lender, how about an equity partner?


If it is truly worth $350M and you get to buy it for $250M, then it is not a hard decision.

Good luck.

Sounds good. Any advice in locating/finding a non-bank lender? Specific things to ask/look for? Do these folks charge very high fees or are they just willing to accept more risk.

Oh, and sorry if I was unclear. The property is $250,000 - not 250M. I don't think I'll ever see 250M... well, maybe one day.

Try not to pay any money until you have a written commitment. Those folks will charge you not only a higher fee, but also a higher interest rate. I agree that they should since it is riskier to go with a higher loan-to-value. Stay away from prepayment penalties {this might be difficult}

How about getting a personal loan and pay that off first? How about asking a relative to come in with you or lend you the money?

By the way, in banking M=Thousands MM=Millions

Admin,

Thanks for the great advice. I have a few questions though.

1. If a bank says it will give you 75% Loan to Value, does that mean a maximum of 75% of the appraised value of the property WITH a down payment of 25%? If I can get an appraiser to quote the piece at $350M, then would the bank be willing to give me 75% of the 350M... or do you think they want 25% down regardless.

2. If I go with a personal loan, would you recommend I obtain the personal loan before I shop for a mortgage? Or does the order I obtain the loans not matter.

3. I'm thinking hard about bringing in a family member to front some of the cost. Go easy on me with this one: Can I walk into a commercial bank without an LLC and ask to apply for a mixed-use mortgage? Are they going to look at me like I'm out of my mind or do people do this often. Even if I create an LLC to keep my exposure minimized, the "company" won't really have any credit history... hmm...

Thanks again for all the insight.

1. Most lenders use the lower of appraised or purchase.

2. I don’t think the order is important, but having the money on hand would give you more flexibility.

3. Income producing property can be held individually or with a real estate holding entity. I would not hold it personally, but many people do. The lack of credit by the holding entity is not a concern. The rental income and the NOI of the property is the important factor here.

Sounds like a very doable deal. I would recommend a 15% down (debt service allowing) with a seller holding a not for 10% and we would do 75%. You can also go for 80% LTV off the bat (Credit permitting). I would reco a stated loan. Email me and i will give you a few options. Thanks, Naj.