Buying a house - dealing with banks.

ZZ-kai- · #1 08-19-2003, 11:20 AM

I need as much advice as possible. My chapter and the House Corp. have been raising money for probably 6 years now and have finally cracked the $40,000 mark. We thought we had a decent amount of money saved and had an offer written up for a house - the offer was written "upon approval from the bank". Well, the bank didn't think that 20% was enough of a down payment, considering the house was to be used as a "fraternity house".

The bank didn't decline our loan, they just required one of two things:

A. All seven board members sign a personal guarantee stating that if the fraternity closes, all seven of the House Corp members (including myself) are responsible for the loan. This does go on our credit history - if we try to buy a house for ourselves, the bank will see that our name is attached to the fraternity house a guarantor.

B. We raise enough cash to pay 75% of the purchase price up front. Good luck with that I say (about another $60,000-$80,000).

So, in a nutshell, I am looking for lenders, banks, anyone that could help us out. We already lost out on a 4,000 square foot house because the seller decided to go with another buyer because we had too many stipulations.

PS, we have a small Greek campus, with small Greek housing. We are looking at improving our housing to 15 men - this is big on our campus. Total spending of about $150,000 - $200,000.

DeltAlum · #2 08-19-2003, 12:05 PM

ZZ,

First, I applaud your willingness to work on this project. It sounds like you're looking at a good size in a reasonable price range.

Having a house is a great thing, but it can be a real bag of worms. I've been on the outside of this kind of thing, and it's pretty scary.

First, there's no way I would sign as a guarantor, unless you can personally afford to pay a large chunk if the chapter fails. I know that's a cold way to look at it, but I've seen even great chapters fall apart really quickly. It's particularly tough when the chapter is young enough that there are no "rich" alums to donate large portions of the cost or guarantee the loan. That was the situation at one House Corp. I was on.

One serious hazing violation or alcohol problem -- the chapter is suspended, and the House Corporation is left holding a fairly substantial bag.

Do you have any alumni in the Real Estate business who might help? How about a lawyer? You need some real expertise.

Unfortunately, the national organizations tend to distance themselves somewhat from these projects because of the above and, frankly, because fraternity houses tend to get trashed and lose their value instead of appreciating as much as other real estate.

The other thing that tends to get lost in the euphoria of building a house is making sure the chapter itself is financially sound enough to not only pay the mortgage, but also the costs -- like property taxes and other operational expenses (a few listed below) and standard maintenance that aren't considered when in the fund raising stage.

Another thing that chapters often overlook is that if the house is closed for the summer, the mortage, utilities, insurance and maintenance costs go on. So rent has to be enough to cover those vacant three months. Some chapters choose to rent out rooms to non-members during summer sessions. I've never been real keen on that idea, since you really don't know how the tenants will treat the property.

This kind of stuff is obviously NOT what you and a chapter wants to hear, but brotherhood can only go so far when House Corp. members are struggling with career, family ,etc.

I wish you the best of luck. The project I worked on has yet to work for many of the same reasons I've listed above -- and the ones you have already discovered in trying to find a lender. It's a really tough exercise -- but not impossible.

ZZ-kai- · #3 08-19-2003, 01:48 PM

Delt,

You're right on the head on this one. We are a young chapter, only 11 years old from our colony days - so nope, we don't have any $100,000 a year alumni.

We do have a lawyer sitting on our board who directs us in the right direction, so we have the area covered.

As for rent, what we have come up with thus far is to place the bills on the chapter, not the individual leasee. The House Corp. would lease the house to the chapter, not individuals. Rent ($300 a month, per person, all utilities included) is due on the 1st of the month from the chapter. The chapter then is responsible for collecting that money from the individual and paying the House Corp. That way, the H.C. doesn't have to deal with collecting 15 different checks, only one. Leases with the chapter will be more than likely yearly, so if people move out for summer, they are still held responsible (by the chapter) to pay their bills.

As a chapter, we have installed a new way for collection of dues. If you owe more than $20 and surpass your payment date, you have about a week to pay up - otherwise you go to collections. This has paid off so far. If this were the case for house members, the chapter would pay their rent and have to go after the member individually.

PS, I agree to NOT be a guarantor. How can I put my name on the line for the house (I love Beta more than most...but its a HUGE risk), when I just bought my own first house. As you said, the first bad thing to happen, and I just bought myself another house. I really don't want another mortgage payment

DeltAlum · #4 08-19-2003, 02:11 PM

Quote:

Originally posted by ZZ-kai-
As a chapter, we have installed a new way for collection of dues. If you owe more than $20 and surpass your payment date, you have about a week to pay up - otherwise you go to collections. This has paid off so far. If this were the case for house members, the chapter would pay their rent and have to go after the member individually.

(APPLAUSE!)

One of the toughest things is for the chapter treasurer to come down hard on a brother. But, it has to be done! Finances must be sound. That's one of life's toughest lessons, and seems particularly tough in a fraternity chapter.

By the way, the chapter I was talking about is a couple of years younger than yours -- and is a real award winner. The house would have been (or maybe will be -- we'll see) just slightly larger (capacity of around 20). We felt that the chapter size would have to reach and average 40 to make this even workable since Freshmen must live in university housing, and seniors probably want their own apartments.

The saga continues.

ZZ-kai- · #5 08-19-2003, 02:39 PM

Our chapter usually sits betweek 50 and 60 men. At our school, the greek housing is small because Freshman and Soph. must stay in the dorms for two years minimum, so getting a lot of guys in the house is difficult.

Collections has been a great thing for us. There were a few years where we had people just blow off debt, then they went Alumn. and never paid (which is why we now go this route). So, being the nice advisor I was, I wrote up some letters to those individuals stating they would be sent to collections if not paid up by XXXXX date, and we actually received about 70% of what was owed to us.

And yes, the saga does continue...

LXAAlum · #6 08-19-2003, 02:53 PM

What state are you located in? I might be able to help find an alternate lender for you - I'm a mortgage broker, and have done a couple of "commercial" properties, which is most likely to be the route you'll need to take - but there are options available.

ZZ-kai- · #7 08-19-2003, 03:24 PM

Wisconsin! Thanks for your help guys, I appreciate it!

The_Nash · #8 08-19-2003, 04:04 PM

This is just a little something on collections. We use Omega Financial to collect our bills (www.omegafi.com). It makes it easy because you can set up a split so that some money goes to the housing corp for rent and the rest goes to the fraternity. it has worked really well for us. Good luck getting the house

-Matt

Tom Earp · #9 08-19-2003, 05:10 PM

Matt,

thanks for that input!

We to have struggled with the Treasurer trying to collect money from Brothers, It dont work!

We have decided to go The Omega Way for a try. Now, they do this for a fee so be prepared.

What DeltaAlum and LXAAlum both have said is true! If you have been there that long, you should have someone in the Financial Industry who will go with you! Are you buying a existing house ( I take it at that) and not trying to build a new House. The Property and build can also be use as collateral if ever default.

Is the continuance of Greek Orgs Stable there? If so, there should be little or maybe no problem finding an institution to loan you money! It is just finding the right one!

20 % sounds pretty good!

But, keep working to make it more, it cannot hurt to have more than the less!

Good Luck!

ZZ-kai- · #10 08-19-2003, 08:35 PM

Yes, we are willing to put down at least 20%, if not more, if we can afford it. We just want to have enough in the bank for a few months worth of mortgage payments in case something happens. If we did buy a house and something did happen, we could sell a house (of that size) in a matter of months. The real estate industry is full of slum-lords looking to make a quick buck on college kids....so selling the house would not be a problem.

In regards to the financial industry, I work in the financial industry for a fairly decent sized corporation, and our bank was the one that required the personal guarantees. This sounds bad, but at least my bank looked at us, other banks told us to take a flying....

Anyway, the greek system is strong and isn't going anywhere anytime soon. It also doesn't help that we have a University that doesn't really care about our existence.

I always said, if I were to win the lottery, I would buy up two blocks around campus and build the greeks all their own houses and have them rent them from me. That way we are together in brand new houses!

If only it were that easy?!?!

DeltAlum · #11 08-19-2003, 10:28 PM

Quote:

Originally posted by ZZ-kai-
I always said, if I were to win the lottery, I would buy up two blocks around campus and build the greeks all their own houses and have them rent them from me. That way we are together in brand new houses!

Funny you should mention that (not the lottery, but outside ownership and lease of houses).

There is a Delt, a former member of our Arch Chapter and a PhD in something who lives in the area. He's in Real Estate now, I think. He used to do just that -- and says there's no way he will ever do it again. (Of course we approached him about the chapter I mentioned in earlier threads, since he lives where the chapter is located)

There were so many hassles and so much damage to the houses he owned and leased to chapters (not all Delt chapters) that it turned out to be a real losing venture.

Sounds good on paper, though.

BSUPhiSig'92 · #12 08-20-2003, 05:59 PM

Check out Olympus Financial (do a Google search) when I was Prez of our House corp. we got a $150,000 mortgage through them. They specialize in fraternity/sorority house financing. The interest rate was a bit higher than a conventional home mortgage, but you might be able to get a good rate now.

Tom Earp · #13 08-20-2003, 06:07 PM

Yep, HMMMM it is a hassel for Greeks! SOME INERNATIONAL/NATIONALS Have building problems! Financing being the main point!

This goes back to Risk Management once again!

That is a new one for me! We ar looking at Omega Fin. to be teh Guardians of Leaseing!

The Problem is Brothers put in charge of colleting money! How do you get on a Brother/Sister!??

three2tango · #14 08-20-2003, 08:07 PM

I have not read all these posts but for the southeast region the mortgage company with the best rates and the least broker fees is worthington mortgage. I work at a title company where we see all kinds of lenders and worthington is the best. I don't know if this is helpful but that is what I know.