Financing Good Deal Or Not?
Hello, I am purchasing a 5plex. As a down payment I am using the equity of my home $100,000. Since it is very hard to get a commercial loan, the owner will carry the remaining portion of the loan $170,000. He has offered 7.25% interest rate for 30 years. There will be a prepayment penalty if I pay before 5 years. Will I have to pay the penalty if I decide to sell the apartments?
Who pays the tile insurance and the costs associated with this transaction?
Overall do you guys think this is a good financing deal?
I thank you for your comments before hand.
Thanks,
Ruby
The owner is looking for steady monthly income; 7.25 is better than he can get at a bank; however, 7.25 seems reasonable since he will carry the loan; 5 yr no-pre-pay is reasonable.
But you really should base your decision on the cap rate and current value of the property.
many I/O loans allow for extra principal pament to be made.
Ruby,
It sounds like you are working through a mortgage broker; have you tried contacting lenders directly? I would think that with 40% down and good credit you would easily be able to find a loan below 9%.
Pre-payment penalties differ depending on the contract. I have never seen a flat amount; usually it is a percentage of the amount prepaid. But I am sure it can be written that way. This is something that can be negotiated with the seller- it is not written in stone. If the seller thinks you are going to walk because of this, he may change his tune.
If the prepayment penalty is written as being in place for five years, after five years and a day you can pay off the entire amount with no penalty.
By the way, being so financially together at your age is admirable. Good for you!
Chris
What are you guys talking about? I thought the owner was carrying the loan? A commercial loan will only cost you thousands in closing costs anyway. The bond-for-deed is the way to go on this deal. Any title company can do it.
Take the owners 7.25% if you like the property, but i heard you say that the property doesnt cash-flow...so the lenders may be doing you a favor.
have you asked the broker/owner to provide a clarification?
Quote:
On 2007-05-21 11:48, cjmazur wrote:
have you asked the broker/owner to provide a clarification?
I will contact the broker/owner as I get more specific information, but is there a recommended % range that can be used for a quick eval before contacting anyone?
thanks,
Kelvin