You must be logged in to reply to this topic.
-
Good Morning Group,
I wanted to reach out with a few questions on structuring a rental portfolio sale via subject to the underlying mortgages. Please note, I am helping a friend with this and want to help her with protection via proper structure and documentation. I am seeking guidance in understanding any blindspots, ideas on structure, and docs. Thanks in advance for all help and suggestions.My friend has a rental portfolio comprised of 7 SFR’s located in the Montgomery, AL area. She is an out of state owner.
The homes were all updated around 2021 and are in C+ to B- locations. She has owned them for 4-5 years and just doesn’t feel the juice is worth the squeeze as rentals – poor cash flow, marginal appreciation, and monthly headaches with property management and tenants. Cashflow is basically negligible at the end of each year.She has been in contact with a potential buyer and provided them with terms that she felt was a win-win and would achieve her monthly cash flow goal. The prospective buyer hold a local rental portfolio and operates a professional management company.
Portfolio –
Retail Value – $954,000 (this assumes retail sale to owner occupant)
Assumed Current Value – $784,000 (assumes current conditions with each house requiring $10k-$25k updates to meet ARV)
Current Loan UPB Totals – $612,000
Current Loan Blended Int Rate – 4.1% (all on 30 year fixed Non-QM loans)Sale Terms –
Sale Total – $ 953,000
All Inclusive Trust Deed wrapping 30 year fixed commercial notes/DOT’s on each house.
Down Payment – $0 ( I mentioned I didn’t like this and should strive for at least a 5% down pmt)
Interest Rate – 4% (blended between existing and new note to achieve total 4% interest rate to buyer)
DSCR – 1.33
Buyer credited with payments on underlying payments on existing note/DOT
Balloon at 15 yearsSuggestions on structure –
– I have suggested that with $0 down, she should roll all properties under 1 new trust deed to prevent buyer from “cherry picking” good properties and allowing anything unwanted to be foreclosed on
– Can allow partial releases of individual properties with 1/7 of UPB paid to release
– Use of loan servicer with fee paid by borrowerWhat would you guys adjust to protect or improve her position?
Jay,
Sorry for the delay getting back to you. I got sick in December and have just gotten back on my feet.
Best to call me with you complicated questions. I have my questions to ask before I can give decent advice. Like: Have you ever done a S2 before?
Kim and I sold 28 of our rental properties in 2016 and 2017. We sold one for cash, the rest we gave owner financing. Most of the properties were free and clear, but one had an institutional mortgage (in our name) and one had a private money loan (in our name).
Bill Cook
770-815-8727
You must be logged in to reply to this topic.