More Updates on Offer #6

I can't recall who it was (BGinvestor?) that told me my closing cost figures seemed low (I mentioned $1500). Well, I'm here to publicly apologize, because they were correct and I was wrong. Not only are closing costs higher, but I failed to include the inspection in my initial analysis. I guess this is why they always say to add a cushion in for 'gotchas' - not only in repairs, but also in financing and other issues.

I met with my loan officer yesterday to go over the details of the financing. Since its a HUD, he said it would take them (HUD) longer than normal to close, so we would probably be looking at mid-to-late April. We then went over how I was going to finance the deal, and came up with the following strategy ...

First, I would get a short-term interest-only ARM at 8% (or close to it). He said I may have to pay a small prepay penalty, if I refinance the loan within a short period of time, but he is going to try to find a lender that doesn't have a prepay penalty or is very low. Soon after closing, I would refinance with a 30yr term at a lower rate. I've always held it in my head that when I refinanced, it would be for 80%FMV - thereby avoiding PMI. That's true, but my mind didn't think beyond the 80%FMV. My loan officer told me that since its an investment property, I could refinance up to 95%, if I wanted. This opened up new opportunities that I hadn't thought of before. I haven't run numbers yet on my specific situation to see if its a good option, but I'll give you an example:

  Purchase Price: $103,500-
  Upfront Costs:  $  3,500-
                  --------
  Total           $107,000-

  FMV:            $135,000

  Refi (90%FMV):  $121,500
  Refi Costs:     $  2,000-
  Recovery:       $107,000-
                  --------
  Total:          $ 12,500

So, I refiance, pay off all my incurring debts for the property, have a new loan with a better rate, and cash-out $12.5k in equity for cash reserves (or whatever). Like I said, I have to run the numbers to see if this is an option for this particular property (and, if so, at what refi cash-out %), but it would definately ease some of the upfront $$$ pain. :-)

Also, while talking to my loan officer, I asked him if it would be better to create a corporation in the future as the entity for transactions. He said he wasn't at liberty to make such a judgement, but said he knows a very good CPA that handles mostly RE investors that I could contact. This was in the middle of our meeting, and I never did get the CPA's contact information. I'll call the loan officer back today and get it. It's ironic that I had just posted a reply in the Rich Dad's forums over this same scenario. I replied to someone who mentioned they needed to get a team together before investing. My reply mentioned that once you start making offers and getting them accepted, your team will start to form almost magically. This is a perfect example of exactly what I had meant.