Equity Investing

General Real Estate Investing
1

I’m getting into my 60’s and own some properties in southern California. Point is in my age, I can’t afford mistakes!!

I’ve been told by several brokers who specialize in home equity investments where they get a re-fi on my existing property and use the available equity to do investments.

For example:
I have a condo in 90046
have about 80k balance on current 30yr fixed mortgage
current value is around 650k
Taxes and insurance and misc fees are about 4k a year

he says

to get a re-fi at ~ 80% LTV on an option ARM mortgage & pay Min. payment (neg. Amort)
so that is $520k loan amount
minus the 80k is 440k to use for RE investing
next he says I can buy three $500k/each 4-plexes totaling 1.5M
by putting down 20% on each or $100K/ea.
and collecting 900/mo from each of the 12 units
and it will cash flow of around $2680/mo

recap:

Number of units purchased 12
Rent per unit 900
Total rent collected $10,800.00 per month
Mortgage payment for source of funds $1,657.09/per month
Mortgage payment for NEW rental units $6,883.88/per month
Property management at 10% $1,080.00/per month
Cash Flow from Real Estate $1,179.03/per month
Depreciation $1,090.91/per month

Interest Income from Savings $412.89 per month (from $ not invested)
Net Cash Flow $2,682.82 per month
Net Cash Flow $32,193.89 per year

Questions:

How can I get the 12 units rent/income flowing w/o a gap in time?
He said that I had to get the Re-fi first and pay off the 80k bal and put the rest in an interest bearing acct. so as to “season” He said that mortgage companies wan to see “seasoned money” I think to react more swiftly when I need to get a 4-plex I like transacted? Is that true?

Can contingency sales be done on 4-plexes(or similar income property) pending the Re-fi? I see this a safer for me.

I have a high FICO, I hear loans can be done in 10-days, the RE market is getting more inventory, mortgage rates are slowing or coming down, property prices are still high, but in my mind must come down to react with the market. This seems like a good time to do this right?

Do I need a Buyers agent for my multi-family purchases? Or is there no such things as a Buyers Agent who will protect my interest.

Are multi-family units easier to handle vs. a strip-center? Which do better in income and appreciation?

The broker says the company he works with Global Equity Lending/Global Realty Marketing is but 3 years old but has attain 4th place in volume of loans in US, in that 3 yr. time. How can I check out this company? He says they do not advertise, word of mouth only.
I did check brokers lic. at the DRE site and he has had RE lic. since 9/01. as broker/officer. When I went to the CA Corp site it said that the (above) companies jurisdiction is in Georgia. Comments?

In Kiplinger there was this article on getting a loan for equity invesing, I’d like to hear comments re. article especially on closing cost.
http://www.kiplinger.com/personalfinance/basics/archives/2003/03/equity1c.html
Do lenders like Ditech really just charge a flat fee of somethig like $400? Or is this just BS and they collect it somewhre else?

I have some experience with real estate as pertaining to my own acquisitions, including raw land, SFR and condo all in So CA and as first owner. My parents have owned apts and comm bldgs. both have had problems, some of which I helped in remedying where property manager did not.

I am all ears on what you have to say. Help me from making mistakes. Or help me by asking questions that I should ask.

Thanks,

ron

2

WOW…that is a mouthful!

I would caution you against these types of programs. If it seems to good to be true then…

You are doing the right thing by doing your due diligence and you will just have to follow your instinct.

Just be careful that you don’t get caught up in any lender fraud.

Regards,
Patti Porter

3

Well, peeling the Onion further…

Now I’m thinking it could be even longer before I actually purchase those units. I’m not in favor of that.

I thought that finding the properties first and looking at the numbers, would help choose the type of loan I want to use that fits my needs.

One opinion was that neg. am loans are for high appreciation income properties and a plan to sell in 3-5 years. Also, with a high appreciation area property, there is usually a low income or rent and vice versa. Is that always true?

4

I would say that sounds like bad deals. you want at least 1% of the purch price to be your collected rents. Make sure you account for vacancy, and all possible expenses.

5

Doesnt seem to great to me, what strikes me is that you are going to spend ~$400K, and only make $32K a year on that money, (8% cash on cash) of course that looks better as time goes on but, you can get 5.25% bank CDs they’re FDIC insured. There is definatly a risk to reward ratio, I would suggest sticking one foot in the water first and not jumping in head first.

6

I dont think this sounds like a bad investment at all really, it may however be more than you want to deal with at this point in your life. Strip malls are not easy either but you will rarley get a late night call from your tenants or manager. It seems like you may be underestimating your expenses as well here and with 12 units you may easily erase your modest 32k return in repairs and God knows what. Also I didnt see taxes and insurance on your expene sheet. But for me to own 1.5 mil in residential units (especially 3 which you can always lessen your exposure) and still be positive the first 1-2 yrs after 80% debt service seems ok right now. As far as lending w/ the equity your bank should do you fine and most are doing no CC right now if you do a HELOC which is a route depending on your long term plans ( this way you maybe do 1 or 2 first and not pay int. on all the money) Good Luck