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URL:  https://boards.fool.com/dave-wrote-quotthe-tennant-can-only-qualify-23726448.aspx

Subject:  Re: GA Deal I'm working... Date:  2/18/2006  10:48 PM
Author:  namkato Number:  7611 of 14302

Dave wrote:

"The tennant can only qualify (poor credit) for a loan at 90% LTV...
Underwriting only calculates at the lower of appraisal or contract... so $149,000 is the underwriting number.
90% of $149,000 is $134,100.... which will be the tennant's new 1st mortgage.
I will carry the 2nd, all the way to 100% CLTV at the full $160,000 price (thus $25,900.)
The tennants monthly payment to me will be a deferred-interest (NegAm) payment of a flat $125/month, which keeps her inside her $1,200 net monthly ceiling budget.

Tennant is fully aware that at the $160,000 purchase price I am being compensated from future sale or refi payoff proceeds for arranging the deal, and I am taking the risks of the asset market value. If the market depreciates, or even stays flat an extended period, I will be forced to eat the losses in a shortsale when the next buyer desires to buy... and as a 2nd lien holder I'll forego any collection attempts on the tennant/seller since she'd be walking away without any proceeds herself.

STILL... my upsides;
A) Buy at $90k (target... say I fail miserably and only get it at $125,000...)
B) Sell at $160k... mostly unrealized profit taken on an installment payment basis,
C) Buyer's financing pays off $134,100 of buy price... I realize between $9k to $44k in profit, depending on how I bought,

Risks;
A) Tennant decides last-minute to move & not buy. (That's the most significant risk I can think of.)

Risk abatement;
A) Tennant sent in a $2,500 non-refundable earnest money deposit toward closing costs... she's got skin on the table.

I've got two more like this in the hopper I'm working on.... the KEY is finding the exit prior to executing the entry, whenever possible."

Hi Dave,
This deal strikes me as loan sharking. Unsophisticated buyer with bad credit taking on a 1st with 90% LTV (what kind of loan?), a 2nd with neg-am. I know it happens every day but it is not suitable. This is like a stock broker putting someone's life savings into all tech stocks in 1999. You are stretching her to the max, no one should be buying with 100% LTV and neg-am at the peak of the market. I'm trying to see how she is not getting in way over her head, and how you might be using your knowledge of the game to take advantage of her.
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