Posted by LP on January 21, 2002 at 12:02:39:
In Reply to: Re: Will this work? posted by mike hutch on January 18, 2002 at 19:31:18:
Thanks for your response. I will purchasing a townhouse in the Northern Virginia market which has been resiliant to the economic downturn as a result of increased gov't spending. Thus the local rental market has held up well.
My concerns with my scenario are the following:
A. As I will in essence need to create a note, I understand that may cause issues. Dont know for sure.
B. I wanted to create the note ahead of time with terms already acceptable to a note buyer so that there will be no issues of receiving the funding at closing. In essence, be in a "pre-approval" mode with the note buyer. He/she would need to do their due diligence on the property once identified to complete their approval process but other than that I would like to be ready to go. Is a "pre-approval" status common practice in the note market?
C. I would need a 5 - 10 year note with a balloon payment in order to achieve free cash flow. An issue could be that the note purchasers terms (i.e. expected yield) would be so cumbersome that it would not make sense to do the deal. What is a realistic expectation of terms I can expect?
As far as the cash out: Asking price is $180K and I pay 10% or $18K down leaving a net balance of $162K to be financed. The $162K will be financed with $50K 2nd lien and $130K 1st lien for a total of $180K in notes. The excess of $180K in notes less the $162K needed will be $18K in cash outs which will be used to pay off the down payment.
What I am attempting to do is have a good LTV (90%)to appease all of the note holders, $0 down, and generate positive cash flow once everythigng is said and done. Make sense?
All responses are welcome - thanks again. Note purchasers, please leave contact information if interested in going to the next step.
LP