100% Finance

[WebBoard]

From: Mike .


Out of our league.....?
From: Bernadette
Date: 4/26/00
Time: 9:51:04 AM

I, in conjunction with some family members have a total of 5 IPs and one commercial property. We have spotted a "big deal" ($3-$3.5 mill) which we would love to go for, but we are "leveraged out" at present and certainly don't have the deposit capital to make a go of this deal.

However, I have heard that you can put together deals whereby you have a higher price for a longer settlement period, and as part of the same deal a lower price at a faster settlement period. This can mean that we can arrange finance without requiring any deposit. If anyone can steer me in the right direction about how to finance this sort of a deal using none of our (presently non-existent) money, I would love to know.

Thanks Bernadette

 

[WebBoard]

Les

Reply: 1
From: Mike .


Re: Out of our league.....?
From: Les
Date: 4/27/00
Time: 1:08:13 AM

G'day Bernadette,

If you haven't already, check out the forum entry initiated on 17 Mar 00 by Darren B - its title is "Attention: Andrew G"

Look thru to the entries that have the heading "Where do you do your shopping?" and DISECT them!!!! Andrew has given some fairly broad hints to Darren - admittedly over a MUCH smaller property than the one you are envisaging - but the detail in these 2 replies from Andrew have certainly opened my eyes.

I cannot help with specific answers, as I have not done this yet - but use Andrew's words as a guide, and they may well point you in the right direction. Especially his comment re "borrowing to 75 - 80% with NO FINANCIALS!!!" Which Bank and all the others probably won't help in this scenario - so go digging for other sources that are not worried by your "financials" (i.e. DSR). Apparently they are "out there" - just waiting to be found.

Sorry I can't be more specific - but I LOVE Andrew's breakdown, and it just might give you the clue you need for this one of yours.

Regards, Les

PS. Who do the BANKS borrow from? Is it possible that YOU can borrow direct from them? (I don't know if this is valid - just thinking out loud).

 

[WebBoard]

Bernadette

Reply: 1.1
From: Mike .


Re: Perhaps a syndicate?
From: Bernadette
Date: 4/27/00
Time: 5:25:50 PM

Our broker already offers us 76% with no financials - yes they are definitely around. Have left the majors well and truly behind. What I am trying to figure out is if there is a way to get in on a very big deal (for us) when our available capital at present is about $50K, and when we are at our leverage capacity and at servicing capacity in normal terms. Maybe I am trying to run when first I need to walk.....

I have been thinking about how to finance this deal, and have come up with a syndicate as a possible answer. Has anyony here had experience with putting together a syndicate, and know about the benefits / pitfalls?

Thanks Bernadette

 

[WebBoard]

Andrew G

Reply: 1.1.1
From: Mike .


Re: Perhaps a syndicate?
From: Andrew G
Date: 4/28/00
Time: 10:46:01 PM

The rule is there are no rules. You make it up as you go along.

What would you like in the deal (in a perfect world?). What do you need? How do you see the longer settlemant helping you? (Would you be banking on CG to bail you out, I hope not)? Know what you need and ask for it, if you don't ask for it you won't get it.

As you say it is a "big deal" but a more important question is, is it a good deal? Are you getting a substantial discount? What is the property yielding? What is your exit stratergy? What are you looking for (that age old question)?

What does the seller need? When do they need it and why? (Perhaps they have a problem you can solve.)

Why does the deal make sense? Does it make sense at $3.5m? Why is there a 16% difference in price range? What will the property value at?

If the deals is any good the money will be there.

I've never put a syndicate together but I have taken on partners to finance a deal (better a piece of the cake than none at all). But still these were easy to sell as the deals were good (meaning the profit was built into the deal).

What is so good about the deal, that is the main question. If it's a good deal the money will be there, every time.

Andrew.

PS Thanks Les. I'm honoured.

 

[WebBoard]

Bernadette

Reply: 1.1.1.1
From: Mike .


To Andrew - more info
From: Bernadette
Date: 5/1/00
Time: 3:50:50 PM

I have requested more info on the deal, but to date have limited facts. Asking price is actually $2.9mill (I do not yet know if it is negotiable) with rental of $348,930, securely let for 10 years to a bank in a provincial city. So it has a 12% rental approx. Outgoings, GST etc I am as yet unsure of.

I need positive cashflow, and technically this would be possible even with no money down. Financing $3.05mill interest only at 8% (asking price plus costs) would cost me $244,000pa. The rental would therefore return $104,930 - hence the original question.

Alternatively, a group of say 15 each gearing off their own "deposit" of $50Kish to raise $210Kish each (I am basing this on 76% LVR with no financials). This would raise $3.15mill which would also cover ingoing costs. After interest of 8% est. had been paid (of approx $192K all up), there would be a return on whole deal of $156,930 - or- split over 15 people at $10,462 or 20% return on capital. Haven't thought as far as exit strategy.

I don't feel confident that we would be able to pull this off, but it is an interesting exercise to find out about all of this stuff.

Bernadette

 

[WebBoard]

Andrew G

Reply: 1.1.1.1.1
From: Mike .


Re: To Andrew - more info
From: Andrew G
Date: 5/1/00
Time: 11:30:05 PM

"...it is an interesting exercise to find out about all of this stuff."

Couldn't agree more. You learn so much just kicking around the figures. So far it appears as if you have something to work with (12% yield is a great place to start).

Don't get me wrong I'm all for country towns but how small is it? (Don't panic, I'm not trying to pinch your deal by guessing where it is) The big problem I see with this property is liquidity. I don't dabble in commercial RE so I can't be of much help really (which is to say I have bugger all experience so don't take my opinion too seriously).

People always need a place to live so I understand homes etc. My personal fear is the small tenant pool at the back end of the deal. That baby could become a massive mill stone in 10 years. (I really hated writing that, the world has too many people telling you why you shouldn't do EVERY deal you look at, so I apologise for being negative.)

The first 10 years look great especially if you can get your 105% finance. If you were selling me on the investment the exit strategy would be vital or some form of assessment on possible future tenants. The idea of 20% is nice but if that is then eaten away with 2 years vacancy at the back end....ouch.

"I don't feel confident that we would be able to pull this off..." Of course you can. Don't talk yourself out of it. You can do the numbers it isn't that difficult. Call a few brokers and start the finance rolling and see what happens. One of them might just give it to you and it is only then that you have to make a decision. Before that it isn't real anyway.

Forget the syndicate. To get 15 people you will need to present to about 80 people and could you be bothered doing that? (I couldn't) Present well to 10 brokers and you will get the same result (all the money) with much less effort. Better still what is your return on investment if you have nothing in the deal? (Excellent is the answer, thats what the E stands for on the calulator in case you didn't know.)

The numbers look nice. How is the yield compared to other commercial RE in the area? Is the property cheap? (I suspect "no" as it has the 10 yr lease) Remenber everything is negotiable.

Happy hunting.

Andrew.

PS Keep us posted on the deal and what you discover as we can all leverage from your experience (assuming you don't mind, that is).