Please Help. Need Advise Badly
Hello,
I have been involved in a deal lately that started out great. It had good cash flow, good occupancy, good price---everything. We had agreed on 600,000 and she would do a carryback for 150,000. I needed the carryback because I could only put down 60,000 to 90,000. That includes my cash and equity. Yesterday she called me and said she couldn't do the carryback because she didn't know she had depreciation and taxes to pay back. I don't know anything about depreciation because I have never sold any of my properties. But I didn't think it could be too much since she has only owned the property for 2 1/2 years. Now I have to find some other way and I don't know what to do. I have always bought mine with the traditional 20% mortgage. She said she would wait a few months until I sell some of my other properties but I do not want to sell. I have e-mailed a few of the lenders in the lenders section of the creative investor that said they could do it 90%, 95%, or 100% LTV. A few have e-mailed me back already and are asking if I have 20% down. So I am pretty discouraged by that already. There are still some more to contact me so maybe I'll get lucky. It sounds as though a contract would be out of the question because her current lender has a clause in the mortgage but I wondered if there was a way we could do it for 6 mos to a year and then refinance. If anyone has any suggestions or ideas I would love to hear them. :-?
The depreciation should only be for tax purposes, but I dont have all the information that you have, so it could be for something else. It sounds as though she is making up excuses though, except for the taxes. If there is any equity in the deal then it is available as a second, as long as she is willing.
As far as your loan, you can get a standard loan for 10% down, but 20% is the actual norm. A good mortgage broker will be able to find you one for 10% or less down, but your interest will be higher. There are hard money loans you can get with 10% or less down as well. If you would like to do a seller wrap around loan as a side agreement, that would work as well. Also dont forget that if the seller has a business entity owning the property, you can buy into the company and do a refinance to buy your new partner out.
Good Luck,
Kyle
Hello Kyle,
Can you explain the "Seller wrap around" and the "Buy into the company, refinance, then buy her out"?
Thank you.
Dave
If she won't do an owner carry, you could structure a Lease option whereas you lease it for 36 months and purchase it for xxx $ at the end. Amortize your previous deal and have your rent credits meet or exceed your principal payments, depending upon the sharpness of your seller. This way she only pays taxes on the income as it is received, as well as taxes on the option deposit after the option is executed or forfeited. That's the tough way. The easiest way is to offer her the 90k down and have her finance the difference. If she does not sell regularly, she will not have dealer status and thus will pay cap gains only on money received by using the installment method. Personally, I agree with Kyle. Somebody has put a bug in her ear, and told her how difficult a second is to collect, or something of that nature.
Good Luck,
Shawn(OH)
Ask her directly what she previously paid for the property and what are the taxes she will have to pay. If her profit is $150,000 and she is loaning that to you, then she will have to come up with the taxes on that $150,000 out of her pocket. Find out what the taxes are and make sure she gets enough in her pocket to pay them.
Brenda
Actually, any portion of this deal that she "loans" you (via a 2nd) should be worked out as an installment sale, because she has held the property for over 2 years. So, if you're buying for $600K, and she is financing $150K, her taxable income from the sale will be her tax basis minus the $450K, not the full amount. The $150K loan will be taxed as received.
What she will have to pay upfront is the depreciation recapture tax, which I believe is 25% of whatever she has depreciated out over the last 2 years. This could be a big chunk, especially to someone that is not receiving any $$$ at the closing table.
Bottom line though in any deal is to know what the other side wants. You know she wants to sell, but do you know why? If you know her needs, then you know the problem and then you can figure out a way to solve it and make this a win-win deal.
Finally, don't fall in love with the property. Every deal has to work out or it's not a deal. Don't try to force it to make it work for you.
Roger
Hello,
First, Thanks for the help and replies.
She is selling the property because she says she has too many rentals, she is divorced with 4 kids and has no time for family. She is very sharp though and has been very successful in real estate. She paid 400,000 for the property 2 years ago. Said she put in a lot of work. I can see some work but nothing major.
Can someone tell me how to find a good mortgage broker and how to tell if they are good or not. I am not asking for specific names or references just to state so I am not in violation of the rules.
I live in a small town where creative real estate usually doesn't happen. You buy it and go downtown to the bank is all anyone knows around here. I have e-mailed the companies in the lenders tab (clicked on my state) but so far the replies are that we don't lend in your state. Thanks to everyone for the support. It really helps.
Jeff
If you hapen to bet active or retired military person, or willing 50 for a membership I have found a killer C/U.
Very competative 1st, and a GREAT! HELOC.
The deal I'm in right now is a 80/10/10 (roughly) really 69/21/10. The heloc has a 1.9 intro rate so I wanted to max out the usaged.
Another thought If she's not looking to put it into real estate, is she interested in carrying the note for a limited time period, or at a gigher interest rate or both.
Maybe she would like the monthly cash flow.
Hello,
Just thought I would let you all know what has been going on with this. First she said she couldn't do the 150000 carryback because of taxes. So I got her to agree to a 60000 carryback. I went to 2 banks and got approved at good rates. I thought I has it in the bag. So I called her and asked her about signing some agreement papers and she said she had to wait a week to get back a hold of me. She said she is being audited this week and will have no time to deal with this. Could there be trouble or trouble in this deal by an audit? I remember her saying she was being audited and that she didn't think she had anything to worry about. Also she took the property off the market so she wouldn't have to pay the commission. She said she could do that because she fulfilled her contract. So I will wait however I will not get my hopes up. Thanks for the responses. Jeff
BTW her banker approved me as well and said she couldn't sell it on contract or any other way but financing from the bank. But I am approved for that so we'll see what happens next.[ Edited by studlee on Date 06/03/2004 ]
studlee,
Glad to meet you.
Did you purchase this property with a wrap (AITD)?
John $Cash$ Locke
JohnLocke,
Good to meet you.
I haven't purchased the property yet. I am hoping to. I guess it will have to be some kind of conventional financing with a small carryback.
Well Studlee it looks to me like a classic case of the don't-really-want-to-sell seller. My guess is the woman is ambivalent about selling and only wants to sell if she can get top dollar and great terms. You come along and make an offer she counters you accept. Now she's convinced she didn't get enough because you accepted. So she says she needs more for some reason that she didn't know about when she originally negotiated. So you offer more (either in price or terms) . Now she's convinced she didn't get enough because you accepted. Trust me the audit is going to come up with some reason she needs to get more. If you accept she will be convinced she didn't get enough.
Clearly this is a game without an end until you walk away. So walk away early. The longer you stay the more it costs. Say you are sorry but you bought another property and now you do not even have the money to put down that you originally did and so, you have to withdraw because you cannot close under even the original terms. Be apologetic and polite but do not attempt to re-negotiate at that time.
Wait two weeks. My guess is the phone will ring. If I'm wrong and she doesn't call wait two months. Go back and say you've been thinking it over and would she be willing to do the original deal because its the best you can do. If she says anything other than yes (I.e. if she trys to play the game again) you say that you cannot possibly do any better for some macro-economic reason that is not going to change. This is your only offer. Anytime she wants to sell on those terms she should call you. About 4 times a year call her up and make exactly the same offer.
I once did this for two years. But eventually we struck a deal. It was, in fact, considerably better (for me) than my first offer.
First rule of negotiation: whoever wants the property most looses.
One thing that was never raised was 'what is her tax basis in the property?'
It does not matter that she only owned it for 2 years. She might have been carrying forward a low tax basis from an exchange.
So, there could be a lot of truth to the issue that she had a larger tax bill then she first expected.
John
[addsig]
Hello all,
Well we are trying it again. I am trying to find a high LTV loan for it and then she will be willing to close. I have good credit but cannot get the lenders in the lenders tab to get back to me. I will keep trying. If this doesn't work out I think I will give it up and look for something else.... It just looks so good and the cash flow is awesome. It would sure make life a little easier......
Jeff