# What are the risk with this deal?



## gie (May 24, 2012)

I am new in any forum. I tried to post it before but I don't think it went through. 
Please let me know what you think about this deal. Forgive me if it is such stupid question because I am so ignorant with investments. I am trying to educate myself again. Thanks in advance.

City Assessment : $402,000
BUY for ONLY $325,000!

It would have a downpayment of 25K, and a monthly POSITIVE Cash Flow of $545/mth starting June 1, 2012
The home has been appraised by the Banks appraisers and have established a market value of $405,000 and a forced sale value of $390,000.

Your Purchase Price:
It would be available for sale and can be bought for $325,000.00 with 25K down
(Our Private Sector Secondary Financing Mortgage of $300,000)

This financing will have a 2.3 % fixed interest rate amortized over 30 years and a $1,152.72 / mth minimum payment.


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## NotMe (Jan 10, 2011)

I guess the obvious question is why is the city assessment higher than the purchase price? where I'm from (Toronto) that's never the case.

In any case, city assessments dont really mean an accurate measure of the homes worth, more an approximation of the areas value. Lower is better than higher from a taxes pov.


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## the-royal-mail (Dec 11, 2009)

That looks like the text of an email copied-pasted from a RE agent? The way it is written seems to want you to act fast, which causes me immediate suspicion. WHY are they selling it for so much less than market value? How long has it been on the market? Was it a grow op? Was there a flood? Is it listed on MLS? Why are they offering it you for such a discount?

Lots of questions here. Get answers before signing anything, don't be swept up.


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## Just a Guy (Mar 27, 2012)

From my experience it's very difficult to get a real 545 cash flow from a single door at that price. Make sure you actually factor in all the costs (like taxes, insurance, maintenance, etc.). If it's multiple doors, say a 4 plex, that's different.

Also, remember in a few years your interest rate will no longer be 2.3%. I believe for every 1% increase, your monthly payments will increase by $100 for EVERY $100,000 of loan...so, your cash flow will disappear if your interest increases by 2%.

Remember, you're agreeing to own this place for 30 years, not just the current 5 or so that you are agreeing to make payments for...


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## Homerhomer (Oct 18, 2010)

Sounds too good to be true, so buyer beware.

1) Selling price much lower than assessment.
2) You do not qualify for regular bank financing and you know nothing about investments.
3) Private financing at 2.3% for high risk borrower!!!!!!!!!!!! For private financing you are usually looking at closer to 10% per year.
5) If everything goes right, the place is rented each month and there aren't any major repairs the message implies rental income of about $2500 per month, is it really achievable?

This has a making of a huge scam, it sounds too good to be true.
Risks, since it sounds really shady I would say you can loose your downpayment and be in a whole lot of trouble.


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## crazyjackcsa (Aug 8, 2010)

It's easy, municipal assessment has nothing to do with actual price.

I bought my house for $166,000, municipal assessment was $138,000 and the insurance replacement value is 400k. Who knows what the bank thought the house is worth. I had a down payment big enough to choke a horse.


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## HaroldCrump (Jun 10, 2009)

I have highlighted the red flags I noticed in the post below.



gie said:


> City Assessment : $402,000
> BUY for ONLY $325,000!
> 
> It would have a downpayment of 25K, and a monthly POSITIVE Cash Flow of $545/mth starting June 1, 2012
> ...


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## Causalien (Apr 4, 2009)

My bank appraiser had to value my home for a HELOC. He marked it 25% higher than the market value and about 10% higher than municipal assessment. I think they have an incentive to appraise it higher so the HELOC request can pass the bank's risk assessment.


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## Cal (Jun 17, 2009)

If you buy the place for the price indicated, I would apply to have it reassessed for tax purposes. You can use your purchase price paperwork to show the assessment value is too high and have your tax bill reduced.


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## Sampson (Apr 3, 2009)

Every city does property assessment valuations differently. Here in Calgary, the city assessments are typically (probably 60-70% of homes) above market value.

Without knowing what city you are in, it is difficult for anyone to know why.


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## jet powder (May 29, 2012)

I do not know much about real estate but I remember reading (my understanding was which could be wrong) that it was common for the banks in the states to increase the value of the home so the down payment could be smaller allowing more to qualify

i.e., if you pay 5% down on a property purchased for $100,000 & the banks values the property for more then its worth say 500,000 since the percentage amount owing on the house apraised value is smaller with the increased apraised value, its not that big of a risk to the bank becauuse only 95,000 is left owing on a 500,000 dollar property. To the bank its like putting down a higher down payment.


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## crazyjackcsa (Aug 8, 2010)

jet powder said:


> I do not know much about real estate but I remember reading (my understanding was which could be wrong) that it was common for the banks in the states to increase the value of the home so the down payment could be smaller allowing more to qualify
> 
> i.e., if you pay 5% down on a property purchased for $100,000 & the banks values the property for more then its worth say 500,000 since the percentage amount owing on the house apraised value is smaller with the increased apraised value, its not that big of a risk to the bank becauuse only 95,000 is left owing on a 500,000 dollar property. To the bank its like putting down a higher down payment.


That's not what the stars say.


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## sharbit (Apr 26, 2012)

gie said:


> and a monthly POSITIVE Cash Flow of $545/mth starting June 1, 2012


Can you explain to us how you get to this number?


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## gie (May 24, 2012)

Thank you to all your responses. Because of them, I am not even going to call the advertiser as I am afraid I might be easily swayed again. That's how I lost a lot of money (in my standard). I am thinking of starting to invest again but I don't know what to do, where to start etc. so for now, I'll just continue reading this forum & just read read read. Again, thank you all.












gie said:


> I am new in any forum. I tried to post it before but I don't think it went through.
> Please let me know what you think about this deal. Forgive me if it is such stupid question because I am so ignorant with investments. I am trying to educate myself again. Thanks in advance.
> 
> City Assessment : $402,000
> ...


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## dougboswell (Oct 25, 2010)

There are many red flags here. 1) On a bank sale the appraisal is done by a licenced appraiser. If the bank sale is $390000 they will not let it go at $325000 so where is the difference coming from. 
2) One is assuming this is a rental so have you look at the rent rolls . $545 a month cash flow does not cover the mortgage payment.
3) There is no mortgage lender out there that will lend at 2.3% (they did not mention the term either). As was mentioned above no private will lend lower than a bank rate. 
2.75% is the lowest 1 year fixed and 3.14% is the lowest 5 year. 

My advice - Run away from this. If you were to look at it have a lawyer look at it first before you sign anything


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## MoneyGal (Apr 24, 2009)

crazyjackcsa said:


> That's not what the stars say.


OMG BBQ CSA that is the best!1o1o1o1oneoneoneeleventy!!!!


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