10% Savings On Acqusition Costs?
How would you like to save 10% on your acquisition cost? It sounds great right! Most financial institutions will require 10% down for the acquisition of an investment property. Therefore, if you finance the acquisition it will hurt your pocket-in addition to whatever additional expenses you might incur in making the property ready.
Some of you might be thinking why should I worry about this if I rather do a Sub2 or a Lease Option? The fact is that good investors will look at any deal from many different angles and will implement whichever strategy makes best financial sense. There are situations where the opportunity is there to acquire the property for 20% off and you have no repairs to worry about, except for minor make ready expenses and to top it off it might be in a great location. However, to do a Sub2 to or a Lease Option might not work because the seller might be in financial hardship and cannot afford a partial debt relief. Further, the property’s financing could be unfavorable due to high interest rate or any loan term that might make the numbers not work.
How can you go around this situation? The answer is the proper use of Land Trusts. Yes, a Land Trust will allow you to transfer ownership in the form of beneficial interest. Technically, you are the owner. This will allow you to do a regular refinancing with the right financial institution. Make sure that the mortgage broker or bank understand what you are doing and that their underwriting guidelines are flexible enough to do so.
Yes, the refinancing will cost some but it will depend on the financial institution used. If it is a bank the cost could be as minimal as $150.00 If it is a mortgage broker, the cost could be rolled into the loan minimizing cost. Whichever route you take will be much less than 10% down.
I.e. $120,000 (FMV)
Principal Balance is $96,000
Currently financed at 80% LTV with 11.25% interest rate
No needs for repair except for minor make ready = $1000.00
Total PITI $1400.00
Comp Lease $1150.00
Most financial institutions will finance 80% LTV of the lesser of, purchase price or principal balance. There are mortgage brokers that will have different underwriting guidelines and will finance a higher LTV. In addition, they might require 10% down (between $9600. and $12000.)
Would you let this deal go? I won’t! With the proper use of Land Trust, you could prevent seasoning issues, down payment and closing cost or at least minimize them.
Now let’s make some money!
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