Doing an analysis for a seller on whether it is better to prepay a loan or lower the price to make an assumption by a buyer palatable? Looking at a deal now and if you price in the assumption by solving for similar LIRR as free and clear scenario, the COC takes a big hit. Guess the question is really how is a buyer going to underwrite an assumption? Will they be more focused on COC or IRR? Or is there a better way to look at this? Thanks!
Trending Content - Real Estate Forum
Career Resources
Keep the same price and assume the seller pays of the financing as a condition of closing so they can offer it free and clear. That way the buyer can do whatever they want with financing.
It's going to depend on your buyer - some care more about COC whereas some care more about IRR. When looking at an assumption deal, also look at 'trapped equity' which the assumer will eventually access. If you are assuming a loan with interest rates and leverage which aren't market, for instance, an above market interest rate, you will probably pay less for the deal. In 3 years when the loan expires (or whenever it expires), the buyer will realize the equity by rightsizing the loan and rate. This sometimes is the incentive for doing an assumption deal. You need to be willing to give on one aspect of the deal or gain later, and usually favors more patient capital.
Ut tenetur quo consequatur fugiat fugiat earum. Dolor accusamus cum est aut unde. Voluptatem quo pariatur sit aut consequuntur. Odit suscipit temporibus dicta voluptate debitis.
Quis est maxime libero vitae odio quam porro doloremque. Animi recusandae atque quibusdam incidunt. Aut cumque et a omnis maxime culpa. Sed vel qui tenetur in beatae. Tenetur in minima autem sit aut doloribus.
Ipsum odit nostrum ut officiis necessitatibus. Cumque molestias et aut fugit quia voluptate ratione. Iusto aut ipsa rerum fugiat explicabo.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...