Newbie interested in purchsing condo for my young family.This condo is priced @ 325k , a drop from intial 339k.Builder slated the 7 units for sale when built in 2007.Unable to move them ,he was stuck with leasing with option @ 1875 /month.
I would like to purchse the last unit @ 25% discount cash using private money.Hold it for 24 months @ 10% apr ,with 1 point for every 6 months extention. I would then like to cash private lender out after 24 months and turn it into my first rental property.
Questions:
1.Is is absurd to make an offer @25 % discount off his asking price?
2.Is private money a viable option to secure condo and is exit strategy a wise option? :rolleyes
This is the problem with your plan. The builder / developer probable at best had a 10 to 15% actual profit margin when he originally built this property!
If the developer has had to carry costs for vacant unit’s until rented / leased he probable has less than a 10% margin remaining to maybe take a profit on, if his construction financing is still in place at a bank, the bank may still have rights to decline an unreasonable offer to protect there position on the overall development.
The developer may still be contributing money for a home owners association (HOA) for rented units and is probable paying $1400 to $1600 a month on the empty unit you wish to purchase.
You can offer anything you wish but the reality is be prepared for the offer to be tattamount to “Insulting the builder” and your offer outright rejected, without countering and without indication of desire to negotiate.
Good Luck!
Okay…I thought it would be an “insult”.His deal is tied to a local bank and he is willing to buy down mortgage for lower apr rate to a resonable 4%,if I choose to buy it @ his asking price.
From the look of things he seems eager to rid himself of these condo’s …they must be a way to negotiate a lower price even if he is hooked to this local bank.
How do I go about this?
Should I not attempt a discount offer ?
Is he just not that motivated because if his tie tothe local bank?
There has got to be a way…where there seems to be no way… :cool
Another issue the builder will have is if he drops the price on your condo it will kill the appraised value on the others because the appraiser will have a hard time justifying the higher price on the other condos when one of them has already sold at 25% of value.This is why builders will give away the farm using seller concessions and upgrades, but if you ask them to drop the price they will say “no way”.
Work the numbers is what I would suggest. There is no way the builder is going to come down to 75% of asking price. First of all that is almost 100K off of his original asking price. Most likely he has an interest only deal based on prime plus 1 with his bank so even if he is renting them at $1875 he is breaking even on each property that is rented. So he has no reason to take such a HUGE loss. Especially when it will kill his ability to sell the others at close to market value.
If you can get him to buy down your interest rate to 4% at 95% of asking price it will save you almost $100 a month over 90% of asking price at a market rate.
Thanks for the feed back…I just want to by cash and hold it for awhile…is it impractical to even offer at 10% ?..I want to be rid of him and be able to do as I please with my the condo going forward.
Please help me understand a more practical way of securing this condo for my own.With your explaination,it doesn’t seem like Builder is all that motivated. :confused
He may be willing to come down by 10%. It does not hurt to offer.
I don’t understand your exit strategy. Can you not qualify for a 30-year loan today? What makes you think you can qualify in 24 months?
Interest rates are likely as good as they’re gonna get. Are you getting in over your head? Seems like a high price for a first home–and there’s no 2nd rental unit with it. What happens if you are out of a job in 24 months?
Just some hard questions to think about. Don’t jump from the frying pan into the fire!
Furnishedowner
furnishedowner,
Am not sure of the exit strategy myself either…hence the post…NO,I don’t want a conventional loan to tie me down ,that’s way I’m looking at private money…I simply wish to secure this new condo ,because it is close to my kid’s schools and will then wish to accomodate my childrens growing educational needs…this is the last of 7 units attached… and could possibly present additional opportunities to buy the remaining units to add to portfolio.
Biting off more than I can chew…maybe,but I have to start somwhere…what if I loose my job?..cross that bridge if I get to it.Gotta be opptimistic.
Whats your take on this now?..Just an ambitious newbie seeking help.
I think He may be willing to come down by 10%. It does not hurt to offer.
Thank you for your responses…Here is my thinking…The builder is offereing the units @319,900 and will also help to close the deal …remember he started out @ 339,900 in 2007,then dropped @ 325,9000in 2008…this remains the same today but offering @ 319,900 for outright purchase.
I want to go even further and offer @ 272 K- 288 K ( 15% -10% discounted offer).
Want to buy two units either @ 576 k -544 k.
Present units for L/O @ 636 K (318k x2 … units come @ 2100 sq ft)
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60 K back-end-profit.
Rental rates/cashflow @ $400 x 24 months (average rate go for $1400 @ 1400 sq ft.)Offer my units @ $1800…$75 less than builder.
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$9600 rental income.
Total profit : $60,000 + $ 9600 = $ 69,000.
Private Money @ 10% interest ,24 months term.
Will I make money here ? :blink:
Why is private money at 10% a better deal than conventional money at 4.5% or 5%? How will you pay off the private money in 24 months if there are no buyers for that unit? If most of the units are tenant-occupied, will home buyers be interested?
Unless there is something I am not seeing, it looks like you could be in a default situation. Do you have access to this private money or do you have to go borrow it from a hard money lender (HML)? What are your qualifications for borrowing?
For a first home, maybe look at some of the threads here about buying a duplex. Sometimes you have to defer the really nice place for a year or two until you build up some equity.
Good luck, and let us know how it goes.
Furnishedowner
My credit score is not in attractive at al.,appeling and need to work on it…hence ,private money all the more reason.
I hope to renew the leases ,with new tenants and extend my terms with Private Money ,if those already in ,choose not to exercise their option.
Yes,I do have private money lined up.
Do the numbers look alright?
Mama,
This is a nightmare scenario waiting to happen. You are basing everything in this deal on what happens two years from now.
Look at the numbers…
$576,000 x 10%= $57,600 per year in INTEREST
$57,600/12= $4,800 per month!!
You are renting them at $1,800 a piece which is $3600. You will be UNDERWATER by $1,200 per month just in interest payments.
That does not take into account condo dues and upkeep to the property. You are in way over your head on this deal. If a private lender is willing to finance this deal it is only because they want you to do all the leg work on the deal and they will foreclose and take the properties.
Ooooouuuuuuuch!
I did say I am a newbie! :embarrassed
Okay…yes I didn’t take the HOA/maintainance etc into account…I knew there were some holes in here,just didn’t know how big…didn’t present my scenario to Private Lenders just yet…How does Mama work this one?..is there a workable solution?..maybe look at the foreclosures and flip them to begin with?..I need to do something :eek
It looks like you did not take any of the numbers in account. The builder obviously has credit lines set up with banks that are going to be nearly impossible for you to match. That is why he is able to rent the units at $1875 and still break even or at least get close to even. There is no workable solution for you on these condos as the price is just to high.
I would suggest looking for a mentor in your area that you can bird dog for and ask them to show you the ropes. This way you can learn while you earn.
you need to remember he basics when figuring out expenses. Mortgage payment , taxes,HOA is any, insurance and add 10-15% for vacanies. What happens if a tenant decided not to pay and you need to evict. How long does it take to evict in your state?
I am a hard ass, on day 7 I am filing eviction papers and they are out in 27-33 days so I am not losing much but still some owners are nice and end up waiting 2 months or more to start eviction process that can take 2 months…
If the developer has had to carry costs for vacant unit’s until rented / leased he probable has less than a 10% margin remaining to maybe take a profit on, if his construction financing is still in place at a bank, the bank may still have rights to decline an unreasonable offer to protect there position on the overall development.