Page 193 - Trump University Commercial Real Estate 101

Use a Money Multiplier

loan must be assumed. There may be a hefty pre - payment penalty on
the loan and the seller does not want to eat that charge.
If you think you may want to assume a mortgage, here are some
points to consider.
In my experience, the assumption process takes a minimum of
90 days to complete. This means that if you sign a contract to close in
60 days, it ’ s not going to happen. You might as well get the 90 days up
front because if you later apply for an extension, you may not get it
and you would be out - of - pocket for all of your due - diligence costs.
Trust me — it will take 90 days regardless of what the seller says.
Often it will take longer. It ’ s smart to build an automatic extension
into your purchase and sale agreement. It gets triggered if the lender
delays the closing because the assumption process is still going on.

I recently closed on one that took five months to complete.
Next, be sure to ask what the prepayment penalty is. You ought to
know what it ’ s going to cost you if you assume the loan and for some
reason want to pay it off before the prepayment penalty is up.
Of course, ask when that prepayment penalty expires. You may
plan on holding the property for three to five years and the prepay-

ment penalty expires in year three. That works.
What if the prepayment penalty is not up for another seven years?
Then it ’ s time to ask the next question — will the loan be assumable
again by another, future buyer?
Many loans have the ability to be assumed two or three different
times; sometimes they can only be assumed once. You must know your
options up front.
Of course, one of the most important questions is the interest rate
on the loan. If it ’ s a nice low rate — and it ’ s assumable again — it may be
attractive to your future buyer.
What if it ’ s higher than market rate? That makes no difference if
the property throws off great cash fl ow. I ’ ve had properties generate
cash with mortgages at 18 percent!
If you assume the mortgage, be sure to watch those interest rates.
Imagine if it ’ s cash fl owing now, and interest rates are favorable when

173

10/14/08 11:21:45 AM
c08.indd 173 10/14/08 11:21:45 AM
c08.indd 173