Apt Property / Master Lease / Perm Financing

[WHC]

I'm new to Master Lease. I've studied how to do it and know how it works.

So you have this apartment property. Say the owner wants 1M for it in todays dollars. So you do the Master Lease and hold it for a period of time till it reaches a future value.

Here's the question. What things should a person consider when trying to figure what future value to go to permanent financing so that the seller gets their 1M at closing.

I'm not looking for answers on how to build up equity with upping rents or making sure that apartments are in good shape to get the value up. I'm looking a finding out things that bank were to be looking at if I were to apply "today" as if the value were already there.

Maybe I could already answer that question with looking at DCR of 1.25 or better. Or how CAP rates come into play?

Just trying to think things through and would like to hear your thoughts?

Have a good day,
Bill

[Real Estate Seller]

Most banks before they will finance will look to see if you have apartment experience and at least 6 months reserves to run the complex. And don't forget the 15% to 20% down depend on your credit, the banks require you to guarantee the loan if you buying under a business name.

[javipa]

Susan Lassiter Lyons offers a master lease program that answers these specific questions very well.  It's not that expensive, but very informative.

You won't need to put 25% down if you organize the transaction in such a way that you're refinancing the deal, instead of getting new purchase money.  The way I suggest is to do a Sub2 deal on the project either after a few months/years into the master lease agreement, or right at the get-go, and then work at refinancing the deal.   Refinancing is a completely different ball game than getting a purchase money mortgage.  You should find a competent commercial mortgage broker.  He will show you how to structure your deal to qualify for a 100% refinance (and the costs).

I've had to get the rents up substantially after taking the property "subject to" in order to get the refinance I wanted.  That was the key for me to get a 100% refinance.

[javipa]

WHC, how/where did you learn to do Master Leases?

[Richard Bacon]

Hi there,

CoStar and LoopNet are good sources for leads, also any NNN sites that are out there. Often these have master leases. I know that there are REITs and investment funds out there that specialize in MOB's. REITs have to lay out acquisitions/dispositions in their SEC filings and often investment funds will issue press releases. This is going to be a regional if not national market for this type of property.

Thanks,
Richard

[Real Estate Seller]

The ones doing the SUB2 should be careful because most banks have a clause in their contract that you can not deed the property without the banks permission. What I mean by deed is by recording it or by contract with home owner. William Tingle got in hot water by trying to teach people that a SUB2 is safe.

[javipa]

The ones doing the SUB2 should be careful because most banks have a clause in their contract that you can not deed the property without the banks permission. What I mean by deed is by recording it or by contract with home owner. William Tingle got in hot water by trying to teach people that a SUB2 is safe.

Your post is hilarious!  Wherever you're getting this information from, you need your money back.

No banks have clauses in their contract that require permission to sell, or transfer equitable interest. 

And nobody 'got in hot water' teaching that sub2 is 'safe;' whatever that means. 

[Real Estate Seller]

javipa, what I was saying is William Tingle is teaching people that they can do a sub2 under deed the property while leaving existing mortgage in place is illegal per the banks. 

[javipa]

javipa, what I was saying is William Tingle is teaching people that they can do a sub2 under deed the property while leaving existing mortgage in place is illegal per the banks. 

That's not what you said.  What you said was,

The ones doing the SUB2 should be careful because most banks have a clause in their contract that you can not deed the property without the banks permission. What I mean by deed is by recording it or by contract with home owner. William Tingle got in hot water by trying to teach people that a SUB2 is safe.

What I said was,

Your post is hilarious!  Wherever you're getting this information from, you need your money back.

No banks have clauses in their contract that require permission to sell, or transfer equitable interest.

And nobody 'got in hot water' teaching that sub2 is 'safe;' whatever that means.
 

[Real Estate Seller]

Can you show me one bank that will allow you to deed your mortgage property when the bank has a first with out the banks permission?

[javipa]

Can you show me one bank that will allow you to deed your mortgage property when the bank has a first with out the banks permission?

Yes.  Every one of them.  I don't ask for permission.  There are no covenants requiring me to do this. 

[Real Estate Seller]

javipa I disagree with you on the SUB2. But I wish you good luck.

[javipa]

javipa I disagree with you on the SUB2. But I wish you good luck.

RES,

I appreciate your attempt to steer the unsophisticated away from danger.  I do.

However, I've been at this too long to need luck.  I've never had a problem with a bank over a Sub2 deal.

I have had problems with the transaction(s).  I've had problems with prospects and clients... I've contracted the wrong deals... I've had sellers back out of deals right about the time I was going to pocket several thousand dollars.  I've had deals stolen from me...  I've failed to find buyers in a short period, because I veered off from what I knew to do...  I've wasted time pitching unmotivated prospects.  I've been thrown out of people's houses after saying the absolute 'wrong,' but deliciously gratifying things (which don't make me look very good, but I digress).  I've been called a crook, a friend, a savior and a god-send. 

But I've never had a bank call my loans.  Granted, that is probably luck, after I look back on what mistakes I made along the way, but knock on wood...

All of those experiences helped me to make finer and more informed decisions, so that today a Sub2 deal is a piece of cake to find, close on, maintain, and profit from. 
 

All that said, Sub2 investing is NOT about scamming banks, sellers, or any other party. It's about helping people get out from under debt that they couldn't do conventionally.  It's also about profiting by helping someone.  

You seem to maintain the notion that Sub2, or perhaps any creative financing is unethical, illegal, or advantage-taking.  I would never participate in anything of the sort. 

Finally, I would agree with you about the AMP scam that's all the rage right now.  They're taking a perfectly legitimate financing technique and bastardizing it into a seriously flawed, often advantage-taking, scheme where upside down deals are pimped out to the unsuspecting, or amateurs are put together to fend for themselves in a Sub2 deal ...only to burn everyone six ways from Sunday ...as we witnessed in Texas news this past week.

Anything can be turned on it's head and made into a potential crash landing ...evidently.

[Real Estate Seller]

You will have to agree when William Tingle and others try to sell the SUB2 to new investors it will be put in the spotlight like the deal in Texas. I do agree most new investors will jump at anything that is put in front of them hoping they can be a big time real estate investor. I tell all new investors it take time in the real estate business. I have been a mentor for a few that wanted to learn the ropes.

[$Cash$]

Real Estate Seller,

Glad to meet you.

Personally have done hundreds and hundreds of Sub 2 deals,verifiable on various county recorders web sites.  Loans called Zero.

Many, many students in all 50 states, Canada and Europe.  Loans called Zero.

I would suggest you study how Sub2 investing really works before you make mis-leading comments.  It only takes a few low life scammers just trying to make a buck, that turns any method of creative investing into a scam.

It really does not take time for a new investor to start investing if they have the proper training to start off with!

John $Cash$ Locke