Re: OWWW i really don't understand your question nor do i understand your comment about the guy dying. . . .
Re: OWWW The lenders I know would only lend an amount that is based on the cash flow stream from the property. The condo rents for $1,000 a month, not gonna lend someone $1.5 mil on an income-producing property than generates $1,000 a month unless borrower has substantial personal net worth outside of the condo. When doing an appraisal, there are three approaches: Market approach (like sales), Replacement cost approach, and Income/Cash flow approach. Since the property is income-producing property with a long-term lease that locks in the rental rate, the most appropriate valuation methodology for this kind of property should be based on the Income/Cash flow approach. Absent a substantial personal net worth, I feel any lender worth his/her salt will only lend based on an appraisal using the income/cash flow approach for valuing the property. I sure as hell wouldn't blame 'em, either. Obviously, if the lease can be terminated and a new tenant secured for market rates, then the property can be valued based on the higher market rent rate. Absent that, a lender would be crazy to loan $1.5 mil on an income-producing property that rents for $12,000 a year...again, unless the borrower has substantial other assets and substantial other cash flow to service the debt. Just my two cents.... Lefty
Re: OWWW when doing an appraisal on a condo, judging from a mortgage broker and appraiser I spoke to, as well as a banker I asked, I wias told that they do not lookat the income approach, but rather at the value approach (by comps in the neighborhood of similar size). so would that even come up? (the rent amount...)
Re: WOW! Lets get this straight!! ***************************************** I think I'm missing something here, if a landlord owns the property how can you get a mortgage on it? Are you buying it from him, the landlord? If this is the case why wouldn't he, or you, if you bought it just try to buy out the tenant? If the tenant was offered say 1 million, she wouldn't move? I'm assuming the tenant knows what she's got, and would not settle for anything less, for the sake of argument. If the condo is worth 2.5 million, you could make a million & she could get a million, and the current owner would get his 500k. If you're saying that she absolutely will not negotiate to move for any amount, and my hypothesis is correct, then I think I get what you are trying to do, but would not the bank take that arcane rent control in to the equation, when making any loan? I would think that the rent controlled condo would be a liability to the bank; is it recorded, like a deed any where? I suppose if it wasn't, and you got some lender that was not aware, you might be able to get some type of mortgage, that being said, I think the bank would then assume the responsibility of having to leave the tenant there, and collecting the going rate if it was to end up in their hands.
Re: OWWW Well, any lender I've ever dealt with on income-producing property has inquired as to current lease terms and want a copy of the lease. Also, I've never seen a legitimate appraiser who didn't do a valuation that first goes through all three valuation approaches---market, replacement cost and income approach. The appraiser then arrives at an overall valuation using his/her professional judgement. All the appraisers I know would look at the fact that the lease is locked-in for $1,000 a month for as long as the 30-year old lady lives there. That is a very restrictive agreement attached to the property that severely limits its marketability and worth to any potential buyers. If you can't get the woman out, would you want to pay $2.5 million to receive an income stream of $12,000 a year? I sure wouldn't. Why would I pay $2.5 mil for $12,000 a year gross rent if I can't get teh lady out? No appraiser worth his weight would place a value on a property that has a restrictive lease without considering the income approach and the lack of marketablity of the property because of the restrictive lease. Where's the market for this property given those lease terms? Maybe I'm missing something...just the way I'd view it.
Re: OWWW They look at the MARKET RENT for such a unit. Two appraisers BOTH told me... a BANKER i'm friendly with told me..... and a mortgage broker I asked told me. They look at what the rental value is. they dont ASK what this particular tenant pays. BTW, I own investment property, so I am pretty sure of this. awaiting your reply!
Re: OWWW yes, i would be buying it from the landlord's estate (he died). the tenant does not want to move, even if I BUY her a HOUSE. She feels that being eble to live there forever, and passs it on to her children as well, is worth more then whatever money I would offer her ($500k-700k) she likes the place, plans on staying. forever.
Re: OWWW Nestea: When you talked to the mortgage banker, the appraiser and the banker....did you tell them the Condo has a lease that calls for $12.000 a year rent for as long as the 30 year old tenant lives there? That is very, very pertinent info....even using the market approach (which is using the comps). Why? Because comps for such a property wouldn't be relevant because there is a restrictive lease in place. The subject property has a severe lack of marketability due to that lease being in place. Tell those people you spoke with that the Condo has a $12,000 a year lease for as long as the 30 year old tenant wants to live there and that you can't evict her without cause...that she's there for as long as she desires, which may be her entire lifetime. And then ask if they'd loan you 70% of $2.5 mil because that's what comparable properties that don't have a restrictive lease are selling for.
Re: OWWW I have to TELL THEM? if they dont ask, why cant I use Bill clintons military policy? (dont ask, dont tell)? why am I responsible to tell them? If your credit card fails to charge you a late fee, will you call them and say that they should? I don't think its my responsibility to tell them. The appraiser, the bank, the broker, LET THE BANK PROTECT THEMSELVES. (yes, I know my example of the credit card is not a good example, just couldn't find a better one off the top of my head)
Re: OWWW Lenders don't want the terms of a lease on income-producing property? So, based on that, I could own a piece of rental property that has a 40 year lease on it that calls for $100 a year for the life of the lease, but a banker is gonna loan me $200,000 because if I were to lease it out out market rates it would bring a value of approx. $300,000? And the banker is gonna do so even though I'm not offering any other collaterial or don't have sufficient cash flow from other sources to more than cover the debt service on a new loan for $200,000? You're a real estate investor....would you buy a property I have that has a 40 year lease on it that calls for $100 a year rent for $300,000? I can honestly say I've never met any lenders who don't wanna know the terms of an existing lease when making a loan on currently leased income-producing property. Also, doesn't one list their rental income along with all other sources of income when filling out the loan application? I have to admit....I'm having a hard time with your scenario....I must be dealing with the wrong lenders when it comes to making loans on income-producing properties that have an existing long-term lease.
Re: OWWW Its a CONDO. not a BUILDINg. usually, on a building 5+ units or mixed use or commercial, they go by income of the property. by a 1-4 family house or condo, they base their lending criteria on the creditworthyness of the person. think outside the box!
Re: OWWW Hey, they don't ask, don't tell....but if I go to appraise that property and see that there is a current tenant there, I would inquire as to the lease terms. If I'm the lender, and I were to get ready to make a loan on an income-producing property that is currently leased, I'd inquire as to the lease terms. I would think that if the appraiser doesn't ask about the current lease, he is setting himself up for a lawsuit. I would think that if the banker doesn't ask about any current lease, he/she is setting himself up for a loss of employment. I would think that any loan committee that approves a loan on a property that has such a restrictive lease without asking about such lease is setting the bank up for a lawsuit by any shareholders. But hey....no one ever defaults on the loan, it'll never come up, lol.
Re: OWWW how about offering them in 6 months the deed in leiu of forclosure, and walk away with a million?? (am I kidding? :-?)
Re: OWWW I don't have any qualms with them relying on the creditworthiness and financial wherewithall of the borrower. Hey, if the borrower has substantial net worth and free cash flow from other sources that more than cover his current debt service plus the debt service on the new loan....well, that person has the personal credit to borrow $1.5 million. But of course a person with such creditworthiness and financial strength isn't gonna default on the loan in the first place....and I thought this whole thread started off by saying one would borrow $1.5 mil and pay $500K to buy the condo, pocket the $1 mil difference and then not pay back the mortgage, i.e., default. I love thinking outside the box...so I'm obviously missing something here, 'cause I keep running into roadblocks and something that has the smell of fraud to it. Since I'm not getting the big picture, I'll just exit stage left from this thread. Please accept my apologies for the diversion...I don't know what I'm talking about.
Re: OWWW where does FRAUD come into the picture? I WONT default. I just want to explor the possibility.. meaning, if the scenario I am trying to do (cash out one million because the bank/appraiser doesn't check) can be FRAUD or ILLEGAL. because i want to avoid any illegalities, that is why i posted this to begin with! I appreciate your posts to this thread.. so.. do you think that IF the bank or appraiser DONT ask, am I doing something illegal?? thanks.
Re: OWWW Sorry, maybe I am stupid here....But NOTHING in this post makes any sence to me. I thought that the Grandpa leased the property? So if he leased the property why is it in his will...and WHY can you buy a leased property...and WHY would you if you only charge 1,000 a month????
Re: OWWW The bank won't be giving you the money for this deal. You're wasting your time worrying about it.
Re: OWWW Quick Overview: CONDO in high rise Neighborhood is not Rent-Controlled This unit is rent controlled until it becomes vacant still from the 1930's Broker says "can be done" Appraiser says "can be done" Banker says "theoretically do-able" Occupied by 70 year old Vacant value $400k being sold for $150k property LOSES $4000 a year (before mortgage) NOW, disregarding all other posts (some of which reference a one million dollar cash-out)..... WHY is this deal not Doable.... or is it?? If it is, Then we agree If it isn't........... why not? Why cant I buy this condo for $400,000, and have a seller's credit for $250,000 (minus whatever it would cost him in taxes.....) ISNT THE APPRAISED VALUE, AS ANY "NORMAL" APPRAISER (WHO DOESN'T READ CREDITNET) WOULD COME UP WITH AS A VALUE? THE APPRAISER I ASKED SAID THAT HE *NEVER* ASKS THE RENT OF THIS PARTICULAR UNIT, ONLY NEIGHBORHOOD RENTAL VALUES! (sorry about the caps....)
Re: OWWW This is from the very first post: Here's the tip: The REASON why i can buy this so cheaply is because there is a young lady (mid 30's) who lives there, and INHERITED the rent control that was in effect in 1913 from her grandpa. (she lived with him, so she inherited the lease.) I don't (and I really mean DON'T) mean any harm by saying this, but what is the deal? Who lives there?
