Too many buildings, no positive income Help?
View your credit file based on any of the UK credit reference agencies, or all three at once
LifeLock is the only Identity Theft Prevention Solution backed by a one-million dollar guarantee!Click here to get a 10% discount.
I have a coworker who I had spoke with recently whom happens to own several properties in the Pittsburgh area. I understand that Pittsburgh is an okay real estate market but, I worry that he is in over his head. This past year he has aquired three buildings that are two to three units, the loans are arm's and he has told me that he has not had that much of a positive income because of his tenants owing rent. Recently he has purchased a building that will be a resteraunt and his deal was for another arm for 175, 000 and it was for sale by owner. His home is also arm which it will reach its second year in 2/28 arm and he will have to refinance. he also has two auto loans of greater than 5,000 dollars I am not familiar with real estate but, how likely is he to be successful in a real estate business with all of this debt? I say he is in over his head. Am I wrong?
Too many buildings, no positive income Help?A lot of it depends on where his rates are on the ARMs. If they've fully adjusted (ie, if you were to price the loan today, you'd get the current rate he is paying), he may not be sleeping that well, but he just may get through it. For instance, if you have a loan that is at 1 year LIBOR plus 1.5%, and one year LIBOR is 5%, the fully adjusted rate would be 6.5%. If his current payment is based on say, 4.5%, then eventually, you'd expect the rate to adjust to 6.5%, and his payments would go up significantly. If it was 6.5%, then it figures to adjust as LIBOR adjusts. Looking at the futures market for short term rates, the consensus seems to be that rates are headed down. If that happens, and his loans were based on rates that were fully adjusted already, he may see some declines in his payments. Rents generally trend upward over time, so he ought to get more income as time goes along. If he can avoid increases in loan payments, the cash flow picture ought to get better as time goes along. However, he is clearly taking a huge risk on the direction of interest rates. If the rates on his loan haven't fully adjusted to the increases by the Fed, then he may be looking at negative cash flow once they adjust...if that happens, it'll be a matter of how long he can hang on. The restaurant may or may not be a good deal...the main questions are how much experience the operator has, how easy is it to re-lease if the current tenant bails, how creditworthy is the current tenant, and whether he can get the same rate if he has to lease to another tenant. If it is a national chain, then he doesn't have many worries there. If not...and if the area is dodgy, then he may be in trouble. Its very difficult to assess a situation like this without knowing all the details...hopefully, I've given you a range of what the possibilities are. Sounds like he is taking a ton of risk...it may work, it may not.
More Related Questions and Answers ...
The loan information post by website user , we not guarantee correctness.