Real Estate Investing: Another Apartment Purchase This Time with a Bank Approved Wrap!

Greetings from the metropolis of Cedar Crest, NM!

The Bank Allowed What?

Wow…has is been a long time or what?  I have been so busy with a real estate class (six weeks) and purchased an apartment building within the same time frame.  Just plain crazy so a lot of things got neglected…especially this blog.  Looks like we have another apartment building in the works (thanks to KB Realty)….things are looking busy for the next few months…at least I hope!

Anyway….

There is one thing I never heard of when it comes to investing… A Bank Approved Wrap.  BUT this one thing is a HUGE deal.  I have done several wraps before…..but never a bank approved wrap.  Now…remember…a wrap is when you “wrap” an existing mortgage with a brand new mortgage.  Read more about wraps HERE.

So what is the big deal?  Well, usually on wraps, there is always a small risk that the loan can be called due to the fact that the asset has been sold yet the loan is still in place.  This is a small risk because banks usually do not exercise the “due on sale” clause call if the loan is in good standing.  In other words, the payments are still coming in on time.  But…there is always a chance.  In any case, when we first approached the seller, the seller did a “no no” and asked if the lender if it would be okay to wrap the note.  Surprisingly, the lender said “yes”…..at first I thought there was a mistake….and I just felt someone misunderstood something.  But….I was wrong.  So, in the last week of December, we closed on an apartment building with only about 6% into the deal (commissions and closing costs).  No joke!

I even talked to my lender friends….they all NEVER heard of of such a thing….especially in commercial.

The beauty of the deal was that it was 80% occupied and still cash flowing.  The issue with the property was mismanagement.  Bad management with out-of-town owners is a great formula for opportunity.

Now…I have to give credit where credit is due.  Preston from KB Realty found this deal and made it happen.  James, a.k.a. “J” our attorney, worked hard during Christmas to get things right.  Having solid relationships was the only way to get this done….but I digress.

There were problems with the deal….more specifically, timing.  The sellers wanted to close before December 31, 2009….which only gave less than 30 days to close.  Now…. trying to close in 30 days during the holidays is impossible….so I thought.  I told Preston “there was NO WAY we could do it.”  Due diligence, attorneys, inspectors, banks, title companies….are hard to round up to work on a project anytime of the year….especially during the holidays….Forget about it!  Well…Preston pushed and pushed and the rest is history.

My partners and I learned something…..we don’t know everything…but thinking we do can lose us opportunities.

Thanks to Preston…David….J….

On to the next project!

• Good vs Bad in the Real Estate Market
• The Mortgage Crisis and Investments in Real Estate
• Weaky #21: The Mortgage Bankers Association's Underwater Mortgage