Need to make a commercial mortgage loan happen in ten days
Closing date:
4-26-19

Property purchase price:
$116,500

Property description:
5-unit commercial apartment complex 
All units currently rented

My (Borrower) payment towards purchase price:
$56,500

Friend’s (Lender) loan amount to me:
$60,000
36 month fixed 
$75,939.19 total paid by end of loan 
$15,939.19 total interest by end of loan 

Location: Hamilton County, Ohio (Cincinnati)

I want to create a private mortgage. I am looking for a guide as to how I go about doing it.

What documents are necessary? 
Promissory note, etc.

How/where to file paperwork?
And what paperwork is necessary to file.

Please help! Just spent $1,500 with an attorney in downtown Cincinnati who basically sent me a poorly worded unsecured note with unclear expectations for me as well as the lender. I was given no direction in regards to how to file it with the state/city.
[{"id": "ekkxexv", "text": "Find a lawyer who specializes in real estate. They can draw it up and register it. Your lender will need their own lawyer to sign with.", "replies": [{"id": "ekl0nyx", "text": "I was referred to a real estate attorney who referred me to one who was supposed to specialize in contract law. The outcome was a waste of time and money. It is not as easy as just finding a real estate attorney and they know what to do. I spent $1,5000 and 7 days learning that. I need to know the steps in order to do it on my own.", "replies": [{"id": "ekl1g6t", "text": "Just to confirm I understand: your friend wants to loan you the money for the property and he wants a lien on the property's title?\n\nOhio is a mortgage state (rather than a deed of trust state). You will want to draft (or have an attorney draft) a promissory note that describes the terms of repayment and a mortgage that details the debt. You can go to your county recorder's office and ask them to add the mortgage to the chain of title or you can work with a title insurance company.", "replies": [{"id": "ekl5mf3", "text": "Correct. Unknowingly, we tried to create an unsecured promissory note and it would have worked as a personal loan with no collateral, but neither of us liked that. \n\nWe want to create a private mortgage, where the lender gives me the cash, I purchase the property, and I pay them back in 36 months. After 36 months, the property is solely mine and they are happy they got their ~$16,000 in interest on a pretty safe bet. Not sure if they give me cash before closing or a check to the seller of the property either. It\u2019s different to find this stuff out.\n\nI really appreciate your input. Any idea of where to find templates for a mortgage? I have a promissory note.", "replies": [{"id": "ekll0ha", "text": "Mortgages are recorded as public record. So in theory, you could get a template from any mortgaged property in your state. You will want to confirm the legal description with title.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}, {"id": "ekl5fnv", "text": "Doing the docs on a private mortgage is not a DIY project especially if you are so new that you couldn't even figure out that the attorney didn't know what he was doing.\n\nYou need an attorney. Be smart about asking questions in the initial consultation. Doesn't matter if you find 5 idiots, you need to keep looking until you find a good one.\n\nAnd your friend needs a lawyer too.", "replies": [], "depth": 3}, {"id": "ekm0rae", "text": "Find a better attorney", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ekl1wsh", "text": "The hell does this thing put off in cash flow that you can cover a loan full amortization in 36 months? Sounds sketchy....\n\nYou need a loan agreement, a promossory note, and deed of trust recorded. But mostly you need a real estate attorney who specializes in commercial real estate. \n\nHonestly if this thing puts off that much cash and the nominal dollars are that low you\u2019re probably better off buying it unlevered the deal costs as % of purchase price will be astronomical", "replies": [{"id": "ekl542n", "text": "This property brings in $3,175 of rent per month. \n\nI bought my first rental (single-family house for $40,000 that brings in $900/month) outright. I do not have enough cash to buy this one. I decided I would leverage for a change \u2014 something I have never done before \u2014 not even on my own home residence. \n\nWhat are you referring to when you say \u201cdeal costs\u201d? Like closing costs? After my first experience with a RE lawyer, I would like to do this on my own. What can the commercial RE attorney accomplish that I cannot, since the lender and I have already reached an agreement?", "replies": [{"id": "eklh1iz", "text": "What is NOI, don\u2019t care about rent. Not sure how you are able to service the debt based off of this properties cash flow alone (unless you intend to come out of pocket for p&amp;i?). \n\nAnd in closing costs, I mean lawyer, title search, Recording costs etc. if you are taking out a mortgage even from a friend you need a lawyer to paper the thing especially if you\u2019ve never done it before. Getting money from a friend without a properly recorded mortgage is a recipe for disaster.", "replies": [], "depth": 3}, {"id": "ekn3fmz", "text": "You should look at the past income statements/tax returns and come up with a proforma statement based on the past expenses and future rent projections.  This isn't hard to do for a property that size, you should be able to do it in an hour or two at most even if you have never done it before.  \n\nWhats the property like?  Tenants pay heat or ll?  5 units is a weird size, is this a hacked up larger builder that was redeveloped into multifamily from some other use?\n\nWhen I see 5 units @ 600 / unit selling for $20k / unit~ I can almost gaurantee your expense ratio is going to be somewhere around 60% +/- 10%.  Those 3~ gross rent multiplier type properties are always loaded with expenses, unless you just found a great deal and this should be a 5-6.\n\nEven at 50~% you are going to be in the red probably 600~ a month, which may be fine as your notes gone in 3 years.  \n\nI agree with the other poster though, you really should know these numbers exactly before moving on.  \n\nAlso you should know going in the reason there looks like a discount on some of these 5-10 unit properties is because they are technically commercial properties and a lot more expensive to acquire/sell than residential, mostly when funding is used.  This causes them to either wind up cash deals or the closing costs to be a huge percent of the deal value, both obviously impact what someone will pay for the property.\n\n//this advice is to Cincinnati before anyone tells me i'm wrong about any of my assumptions.", "replies": [{"id": "ekn7y1g", "text": "Water is $152 a month (average for last 12 months) for the whole building. I pay garage, which is inexpensive. And I pay annual property tax of around $1,400 (but it\u2019s about to change because the last sale was for $65,000). \n\nThe seller bought it empty, renovated and made it a 5-Plex. He did it unit by unit. Everything from windows, to roofing, flooring, tile work, electrical and plumbing are all new (2015 and up). He builds houses for a living and flips existing structures. 5 new furnaces, 5 new water heaters, etc. It\u2019s not a brick building, however, it\u2019s got vinyl siding. This leads to $3,600 a year for really good insurance coverage. \n\nDo you expect closing costs to be so significant even for a private mortgage? What if I went with my original idea and made this a personal loan and \u201cpaid cash\u201d for the whole property? Does that change things.", "replies": [{"id": "ekngi40", "text": "&gt; Do you expect closing costs to be so significant even for a private mortgage? What if I went with my original idea and made this a personal loan and \u201cpaid cash\u201d for the whole property? Does that change things.\n\nNo.  It isn't having a mortgage that is expensive, its all the fees banks charge, which go up substantially when you are talking commercial.  The actual fee for title recording the mortgage isn't much.\n\nIf your property was a million bucks it would still have the same loan app fee, appraisal fee, phase 1, survey etc fees.  If you are using a private lender who doesn't require any of this then it makes no difference.  Residential loans tend to just look at the borrower and are pretty stream lined, commercial loans look at the property too (particularly its finances).  I don't know if you do any inspections but that will all cost more on a commercial prop too.  There are a billion loan products, but you also have the fun of shorter terms typically too, so you will have to refi/renew the loan more often.\n\nJust saying, if you have a $100k 4 family you can transact that pretty cheap.  A 100k 5 family might cost 5-10k more.  The 5 family's actual loan fees etc are going to be similar to a 1 million 20 unit though.  So essentially what is a few percent of the total cost can wind up being 10% or whatever.  Just the appraisal is probably going to be 1500-2500~ where as a 4 unit would probably be like 500~ for an example. \n\nEverything is just more expensive with commercial.  Like today I called an engineer about a small problem I wanted them to look at and write a repair letter for.  Call them up and explain the issue and they say no problem $550, I say great, and they say oh is this commercial?  I say yes and they say its $750 then :)  what changed?  Not a damn thing", "replies": [{"id": "eknjcsn", "text": "My builder is a close friend.\nMy lender is a close friend. \n\nWe have done business and made money together on several promissory notes in the past. Mainly for lending to my builder to flip/build houses and get our profits upon sale. \n\nI\u2019m not getting an inspection, appraisal, survey (not sure why I would need that if the auditors site shows what I am purchasing based on parcel number, plus my builder owns the neighboring properties).\n\nCall it blind, but I do not fear things going wrong with the people involved in this transfer of title. There\u2019s no scaring me out of this particular property. \n\nI truly just need the proper paperwork and guidelines to file this lien with the state/city. Essentially just the docs I need and where to file them. Also, what fees are applicable to me: Seeing how I don\u2019t need an inspection, appraisal, mortgage insurance, etc. What comes to mind?", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ekllcun", "text": "You may ask your title company to see if they are able to create and file a mortgage.    Sometimes they have a lawyer on staff and can do it.", "replies": [], "depth": 1}, {"id": "eklotiw", "text": "Find a competent commercial real estate broker, pay him a fixed fee to review the deal, structure it properly, write a contract and then hook you up with an attorney that can put the note and mortgage together. You want that broker to specifically check what stoweker questioned before you spend the money on the attorney. This is not \u201cdo it yourself\u201d stuff.", "replies": [{"id": "eklqdub", "text": "I\u2019ve lended over $450,000 to the seller of this property in the past through similar promissory notes. I\u2019ve also spent $165,000 and $40,000 on properties I currently own with this seller. We have never had a lawyer involved and the deals always made money. Not sure why anyone is caught up on me not being able to do it myself? I\u2019m good for the money even if this property lost all of its tenants the day title gets transferred. Is the fear of me doing it myself stemming from filing the lien improperly? I don\u2019t think the county would allow me to stew that up. I\u2019m just looking for the necessary steps. Also curious where the fear stems from though.", "replies": [{"id": "ekm0v2o", "text": "Future Bola", "replies": [{"id": "ekmvckz", "text": "Bola?", "replies": [{"id": "ekmvqt7", "text": "Best Of Legal Advice\n\nI work in CRE finance. There's an expression that nobody needs the documents, until they need the documents. \n\nThey can seem unnecessary, and then something unexpected happens.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}, {"id": "ekm6bis", "text": "&gt; curious where the fear stems from though.\n\nYou're asking non-legal experts for expert advice. You are not a legal expert. How do you know you are not leaving yourself open to a very costly mistake by not using effective wording and following proper procedure without such expertise? \n\nThe seller of this property could change a lot in 36 months, you never know. Yes it's better to avoid a lawsuit, but you should also protect yourself from them.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ekn0d51", "text": "title will file it, you give it to them.  They won't fill it out though obviously.  You should draft all the loan terms into a letter and send it back to the attorney with instructions to provide a document to match the deal terms you are providing.  Point out why what they sent you doesn't and ask them to fully fill it out.  After that you simply email it to title like \"please use this mortgage\".\n\nIf you do not like your attorney and want to start over I can recommend a couple in hamilton county who do this work.  Or as others mentioned you title company may.  If your title company doesn't, you may consider switching too.  \n\nOff the top of my head Matre Law offices and Prominent title would both probably do this.", "replies": [], "depth": 1}]