VTB or Caveat?

[MarkTorgerson]

Hello

I several doors to my portfolio but all of my deals have been traditional 20% plus cash down with a joint venture partner. I found VTB`s too difficult to sell in the past. But things have since changed..... Vendors are more motivated
I have found a deal with a motivated vendor. She has already missed one payment and currently living in another city. The price of the house is $249,000 but I think I can get it of $220,000. She owes $120,000. She is open to VTB`s etc. I think she would carry as much as 20% of the financing which (theoretically) could get me in for no cash down. How would you experienced REIN members structure this deal? I can`t show the full amount being carried to the bank as they don`t like 100% financing. The banks don`t want to lend money right now anyways. Would a possibility be putting my own cash down to finance the property. Then, at the same time, draw up a caveat or promissory note where she lends me back the money secured against the property? I understand the theory of VTB`s but have found the banks do not like them especially when it makes it 100% financing. Any other ideas or suggestions??

Thanks
Mark

 

[GregGillespie]

QUOTE (MarkTorgerson @ Sep 22 2008, 01:03 PM)
Would a possibility be putting my own cash down to finance the property. Then, at the same time, draw up a caveat or promissory note where she lends me back the money secured against the property?




Exactly, Mark. You could close with your funds and then register the VTB/2nd mortgage after closing.



Greg

 

[invst4profit]

How much cash does she really need out of this deal. This is crucial to the negotiations. Is she under enough pressure to move further. How long has the property been listed.
Make two offers 40% VTB at 220,000 and 20% VTB at 200,000. Test the water. Let her suggest the interest rate. Once she has accepted your offer in principal you have her and can then negotiate the rate. At that point she will be reluctant to lose the deal and probably be very flexible on the rate.

 

[MarkTorgerson]

QUOTE (GregGillespie @ Sep 22 2008, 02:08 PM)
Exactly, Mark. You could close with your funds and then register the VTB/2nd mortgage after closing.



Greg






Am I at risk of her changing her mind or walking from the deal? How do I protect myself so that she lives up to her end of the agreement? Do we just do both deals and have some signed at the exact same time?



THX

 

[MarkTorgerson]

QUOTE (invst4profit @ Sep 22 2008, 02:51 PM)
How much cash does she really need out of this deal. This is crucial to the negotiations. Is she under enough pressure to move further. How long has the property been listed.

Make two offers 40% VTB at 220,000 and 20% VTB at 200,000. Test the water. Let her suggest the interest rate. Once she has accepted your offer in principal you have her and can then negotiate the rate. At that point she will be reluctant to lose the deal and probably be very flexible on the rate.






Let's just say she would take the 40% VTB at $220,000 for math purposes. What I am mainly looking for aren't the numbers, but how it would be structured. Do I register the VTB after close? And if so, how do I ensure that she still signs the VTB and lends me the funds back?



THX

 

[Thomas Beyer]

QUOTE (MarkTorgerson @ Sep 22 2008, 02:03 PM)
Hello



I several doors to my portfolio but all of my deals have been traditional 20% plus cash down with a joint venture partner. I found VTB's too difficult to sell in the past. But things have since changed..... Vendors are more motivated

I have found a deal with a motivated vendor. She has already missed one payment and currently living in another city. The price of the house is $249,000 but I think I can get it of $220,000. She owes $120,000. She is open to VTB's etc. I think she would carry as much as 20% of the financing which (theoretically) could get me in for no cash down. How would you experienced REIN members structure this deal? I can't show the full amount being carried to the bank as they don't like 100% financing. The banks don't want to lend money right now anyways. Would a possibility be putting my own cash down to finance the property. Then, at the same time, draw up a caveat or promissory note where she lends me back the money secured against the property? I understand the theory of VTB's but have found the banks do not like them especially when it makes it 100% financing. Any other ideas or suggestions??



Thanks

Mark


option 1: seller carries up to X% LTV (say 90%) at low low interest rate with existing low mortgage until 1st mortgage comes due

option 2: you get brand new 75-80% mortgage and seller caries up to X % (say 90%) at higher interest rate



Show them both options in 2 offers with cover letter .. and see what they say !



Try 100% LTV .. and the seller may or may not take it ! .. the bank likely will not in option 2 !

 

[MarkTorgerson]

QUOTE (thomasbeyer2000 @ Sep 22 2008, 07:04 PM)
option 1: seller carries up to X% LTV (say 90%) at low low interest rate with existing low mortgage until 1st mortgage comes due

option 2: you get brand new 75-80% mortgage and seller caries up to X % (say 90%) at higher interest rate



Show them both options in 2 offers with cover letter .. and see what they say !



Try 100% LTV .. and the seller may or may not take it ! .. the bank likely will not in option 2 !




Thanks Thomas.

I think the seller would indeed take option 2 at 100% financing. Now the problem is getting financing. Would it make sense to have them do a VTB after closing to get around the bank or am I now treading on dangerous waters for disclosure? What they are really doing is lending me the 20% cash down back. Is this legal and if so, how would I go about it? Would a promissary note or caveat be an option?



Thanks in advance

Mark

 

[Thomas Beyer]

QUOTE (MarkTorgerson @ Sep 22 2008, 08:53 PM)
Thanks Thomas.

I think the seller would indeed take option 2 at 100% financing. Now the problem is getting financing. Would it make sense to have them do a VTB after closing to get around the bank or am I now treading on dangerous waters for disclosure? What they are really doing is lending me the 20% cash down back. Is this legal and if so, how would I go about it? Would a promissary note or caveat be an option?



Thanks in advance

Mark




likely the bank will not go for it .. you have to show them the offer .. and you have to show any "side agreements" .. but you can always ask ..



workaround: the best way is for you to open a company where seller invests $s (to represent the 100 - X%) as cash .. then go to bank and ask for X % mortgage .. then pay him his X $s back !



the applicant is the company .. and frequently the bank doesn't ask "Where is the cash to close in company coming from" ...



however this represents a willing seller and the cash has to be in the bank before closing .. worth a try though !!

 

[MarkTorgerson]

QUOTE (thomasbeyer2000 @ Sep 22 2008, 09:13 PM)
likely the bank will not go for it .. you have to show them the offer .. and you have to show any "side agreements" .. but you can always ask ..



workaround: the best way is for you to open a company where seller invests $s (to represent the 100 - X%) as cash .. then go to bank and ask for X % mortgage .. then pay him his X $s back !



the applicant is the company .. and frequently the bank doesn't ask "Where is the cash to close in company coming from" ...



however this represents a willing seller and the cash has to be in the bank before closing .. worth a try though !!




Would another possible work around be..... If I have another property with enough equity to cover his VTB, could I not just register it against that property? For example, he seller agrees to a $50,000 VTB on property A that I am buying from him. I also own property B that has more than $50,000 in equity. Could he just do a traditional 20% down mortgage on property A. At the same time draw up an agreement where he lends me $50,000 secured against property B?



Thanks again.

 

[Thomas Beyer]

QUOTE (MarkTorgerson @ Sep 22 2008, 09:22 PM)
Would another possible work around be..... If I have another property with enough equity to cover his VTB, could I not just register it against that property? For example, he seller agrees to a $50,000 VTB on property A that I am buying from him. I also own property B that has more than $50,000 in equity. Could he just do a traditional 20% down mortgage on property A. At the same time draw up an agreement where he lends me $50,000 secured against property B?



Thanks again.


sure .. that could work ..



Still, the bank may not like a 0 down deal !! Best to ensure that the 2nd mortgage (on property B) is in place and money in the bank before you close !



most, if not all, commercial mortgages carry a clause that the bank has to approve any 2nd mortgage .. and likely you will NOT get that approval shortly after closing .. but perhaps a year or 2 later when the income is sufficiently higher .. thne swap 2nd mortgage from property B to property A !

 

[MarkTorgerson]

QUOTE (thomasbeyer2000 @ Sep 22 2008, 09:37 PM)
sure .. that could work ..



Still, the bank may not like a 0 down deal !! Best to ensure that the 2nd mortgage (on property B) is in place and money in the bank before you close !



most, if not all, commercial mortgages carry a clause that the bank has to approve any 2nd mortgage .. and likely you will NOT get that approval shortly after closing .. but perhaps a year or 2 later when the income is sufficiently higher .. thne swap 2nd mortgage from property B to property A !




Perfect!! I think I have found my angle for (legal) zero cash down deals.

I will come up with the 20% cash down up front myself and then get it back by registering a 2nd against one of my other properties that has ample equity.



Thanks!!!

 

[Thomas Beyer]

QUOTE (MarkTorgerson @ Sep 22 2008, 09:44 PM) Perfect!! I think I have found my angle for (legal) zero cash down deals.
I will come up with the 20% cash down up front myself and then get it back by registering a 2nd against one of my other properties that has ample equity.

Thanks!!!
right .. just ensure that you are not overleveraged .. and income covers mortgage payments !

Alternative option is to re-finance after a year or 2 of ownership with higher rent .. and with CMHC you can get mortgage rates well below 5% for 5 years right now !

 

[MarkTorgerson]

QUOTE (thomasbeyer2000 @ Sep 23 2008, 12:56 AM)
right .. just ensure that you are not overleveraged .. and income covers mortgage payments !



Alternative option is to re-finance after a year or 2 of ownership with higher rent .. and with CMHC you can get mortgage rates well below 5% for 5 years right now !






Sounds good. I actually think I can back end the interest and have it accrued and paid at the end of the term instead of monthly. I was thinking 2 years. I would give a higher rate for this kind of term but it would make for much better cash flow.



THX!

 

[MarkTorgerson]

QUOTE (MarkTorgerson @ Sep 23 2008, 08:39 AM)
Sounds good. I actually think I can back end the interest and have it accrued and paid at the end of the term instead of monthly. I was thinking 2 years. I would give a higher rate for this kind of term but it would make for much better cash flow.



THX!






Well I think I have a deal on the following structure. Price $220,000 with conventional mortgage. A $50,000 2nd mortgage loaned back to me secured against another property. I'm paying 10% but all at the back end so full payment with interest after 2 years. So the structure is exactly what I wanted. Now the problem is my lawyer and realtor are confused on how to write it up or how the paper should flow. I'm writing the offer without any mention of a 2nd. A separate deal is being done where I am being loaned the $50,000 against a different property. They need the conventional mortgage sale first in order to loan me 50g back. How would the paper flow? Would we just write the $50,000 in the assignment of funds for the original sale??? Is there a better way? Any suggestions to a good lawyer that knows this stuff?



Thanks

Mark

 

[kboughen]

QUOTE (MarkTorgerson @ Sep 24 2008, 12:13 AM)
How would the paper flow?


I would suggest two separate transactions;





1) You buy the house with $50,000 down from your own funds, a straight forward conventional purchase from your realtors and closing lawyer's point of view.





2) The second transaction is registering a second mortgage against another house, nothing to do with the realtor or the first lawyer (although it could be the same lawyer).