Much like Kdhasted I buy all cash.I pay 100% down ,rehab list with a realtor and pray I make $10k - $30k.Its as simple as that.
Everything comes down to one fact here!!!
Americans are nothing more then payment buyers!! I sell more houses on monthly investment then I ever do the cost!
Me “Where do you want to be at monthly?”
buyer “1150”
Me “and up to?”
Buyer “$1,300.00 why how much is the house?”
Me “What’s more imortant your overall cost or your monthly investment?”
Buyer “My monthly investment”
Face it there are ROCKS born everyday!! Don’t be one of them
If I was working with $185,000.00 I would either
A. Advertise as a HML for deals up to $175,000.00 at 70% LTV and lend the money at 13.99% and 4 points
or
B.Put it down on my house and show a trust that held the 2nd mortgage at 13% and pay my trust monthly and get that money back tax free! Use that to plan for retirement!
or
C.Listen to Keith and buy all cash!!
well there is also
D. Party it up!!
I would go with A B or C
Option D sounds good! ;D
So what you’re saying is purchase a property and then create a note @ 13.99%. Wouldn’t the buyer just go to a different lender? If not, then I’m assuming this would be a customer who can’t qualify, correct? If so, then I would be taking a big, big risk because this person probably has credit problems, late payments, charge offs, etc…
If you can, please elaborate on the (a) option because it has piqued my interest. I would have never thought of something like that. Thanks REO.
My bad, I didn’t see the HML part regarding (A). I thought you were talking notes.
People that do seller financing typically have less than perfect credit. That’s why they are doing it. That’s why you charge them a higher interest rate.
So the buyer pays the seller, then the seller pays the mortgage? The seller then keeps the difference between the payments. Is that correct?
If I buy a house 20-25% below market here is what I do and why I do it!
send this to all mortgage compaines and run this ad!
I HAVE A HOUSE LOCATED AT __________________________
THE PRICE IS NOT NEGOTIABLE AT $200,000.00
BRING YOUR 80% BUYERS TO LOOK AT IT AND I WILL FUND THE ADDITIONAL 20%!
SO HERE IS HOW THAT DEAL WORKS
Sell price $200,000.00
Closing costs $5,000.00
First mortgage $160,000.00
Seller Financing $40,000.00
I create a note at 6-13% interest (depending on past credit) on the $40,000.00
So at 10% interest and a 2-year pre-payment penalty their payment to you is!
$351.02 per month.
Principal: $40,000.00
So after two years here is what has been paid and what is owed!
5/1/2007 they paid They Owe
$8,424.48 39,532.01
NOW LOOK AT THE BIG PICTURE!
You just made $351.02per month on this property and at the end of two years they have paid you $8424.48 and they still owe $39,532.01 on that 2nd Mortgage.
Everybody always asks me well what if he or she never refinances and you are stuck holding that mortgage for 30 years that means they paid back $126,370.30 so $86,370.30 in interest over 30 years.
Let’s get this straight: if you carry 3 deals a month at a $40,000.00 average, so that is $351.02 per note per month, at the end of one month you make $1053.06 per month. Now that does not sound like too much. But, take that times 12 months that is $12,636.72 per month!
And that is only 36 deals per year.
Now look at the pay off on those 36 deals!
$1,265,024.32
Not bad for a years work!
So if you work that same system for 3 years that’s.
$3,795,072.96
Or a monthly cash flow of
$37,910.16
The main thing to remember about this is that there are escrow companies out there that service these notes cheep, like less then $15.00 per note per month! And if they are not paying they will even handle the foreclosure process for you. If you do not just sell the note yourself.
And the number one question here was what if they never pay?
Option A sell the note after they are 30 days late for .75 to .90 cents on the dollar
Option B. Work the process yourself buy them out get the house back and re-sell it again doing the same!!
The facts here are simple.
Lease options are now border line illegal in some States
Renters are a pain in the ______ (fill in the blank)
repairs on rentals are also a pain in the ________
To carry a note is SIMPLE and it was never your money to begin with!!
At one point in time in my life I had a ton of rentals… And I would tell EVERYONE Rentals are the way to go I figured out this system and now this is the only way I will go from now on!
Sorry about hte long post! Hope it helps!
Your basic premise is good, but I think your analysis is a bit simplistic.
“And the number one question here was what if they never pay? Option A sell the note after they are 30 days late for .75 to .90 cents on the dollar.” YOU WILL HAVE LITTLE CHANCE TO SELL THE NOTE WITH A BUYER WITH NO SEASONING WHO ISN’T MAKING PAYMENTS.
“Option B. Work the process yourself buy them out get the house back and re-sell it again doing the same!!” WHAT IF THEY DON’T WANT TO LEAVE, AFTER ALL THE HOUSE IS IN THEIR NAME.
If you are on the 1st mtg. your credit is going to get dinged. Also, your 2nd won’t look great if it comes to: Foreclosure, a long and expensive process and, because you are requiring nothing down, your chances of getting solid tenants are iffy.
What happens if your tenant who now owns the home gets a lien placed on the property? Like I said, your premise is good but you have little or no asset protection and your projections are a bit guru-ish.
A suggestion: To streamline your system, I would place the property in a land trust after acquiring it. I would make my tenant a Resident Beneficiary while holding on to a 10%-50% int. myself. That way, if he should ever default, it’s a simple eviction. You can use a triple net lease and avoid the maint and repair issue. You are protected from liens and encumbrances and in control, instead of at the mercy of your tenant.
Still, it’s creative and best of luck to you.
Da Wiz
Its all about the amount of risk you want to take isin’t it?
Here is why I personally don’t do it your way!! IT STINKS!
There is a big difference here In your example if the TENANT does not pay the rent you pay the MORTGAGE to keep the property!! Liabilty RIGHT? RIGHT!!!
If the hot water heater goes out I PROMISE that cry baby will call you at 3am and whine!! (I do not care what your agreement says)
The house burns down? YOUR PROBLEM
Take the time to MEET PEOPLE I could sell a note for .75 cents today that I bought for .50 yesterday.
WHEN YOU HAVE THE CHANCE BE THE BANK NOT AN INVESTOR!!
Why the hostility? I was offering positive suggestions.
If the tenant does not pay the rent, he gets evicted. Simple – no foreclosure. My lease agreement has two payments in reserve as a contingency.
When the hot water heater goes out, my tenant who is also a co-beneficiary and owner of the trust, repairs it as he is required to do in the lease. The house burn down? Give me a break. My tenants aren’t crybabies because I share future appreciation with them 50/50 and treat them as property owners rather than renters.
The average profit in one of my transactions is around $40K and I am never on title or on any loan. The property is shielded from any tenant bk, lien, judgment, etc.
I just think you have far more liability and exposure than is necessary as you are on the loans and on title and you are carrying notes.
Have a nice day.
Da Wiz
I was not trying to sound hostile And for that I am sorry WIZ!
Its day four without a smoke!! Wife said the same thing that is why I am in the office! LOL
Here is my deal I owned over 70 rentals at one time NEVER AGAIN!! I do not care if they are in lease options! Trusts… Or what they are in NEVER AGAIN! As a matter in fact I still have 14 of them and I would give them away to the right person! NEVER AGAIN!
I sold them all created notes and a really nice income for my family and I. Moved to the Mountains and do not have any cares in the world!
Now don’t get me wrong I was not a HANDS ON DO IT YOURSELF PROPERTY MAnager. Here is how I look at it when you decide who you are holding the note for you look at the credit decide from there the rate! When you do Rentals if you are looking at credit chances are you will be looking for awhile. BECAUSE MOST PEOPLE WITH GOOD CREDIT BUY!! Some times I carry 20% sometimes its only 10% it is all up to how good your LOAN OFFICER IS!
Who was it that said
“A chain is only as strong as its weakest link!!”
Now with over 5 million jobs being lost over seas in the past 4 years and an estimated 3.3 million more over the next 5 I really am no longer wanting to BUY AND HOLD!!
As far as a TRUST!! I use a trust for everything and could not agree more USE A TRUST FOR EVERYTHING!!! I do not even own a car (MY TRUST DOES THOUGH)
We just have two different ways to do it and niether of us were wrong!!
I am just a in and out guy from now on!! And hey if that do not want me to take back the property! COOL! That is a great write off come Tax time!!
I’ve seen approaches similar to REOconsultants. The only thing I don’t like is how he’s holding the 2nd on it. If the buyer defaults on the 1st then he’s looking at having to buy out the 1st or risk losing his 2nd on an auction.
The thing you have to remember about seller financing is to not pay retail for the house. You still want to focus on rehabs. The only difference is how you sell them. Your spread looks much better when your total costs are $70k and you sell for $100k (after commission) and a higher interest rate.
Now if REOconsultants does this, then his note for 10% is really just profit anyway. He’s turning $10k of his profit into a note to receive it over time. He’d still get $20k of profit at closing.
I do not think I have ever paid retail on a house.
Sorry I did not make that clear!
NEVER PAY RETAIL!
Hi:
I am interested in learning more about buying notes. What system or guru do you suggest has the most informative material to learn this from? I only know of Donna Bauer’s stuff now.
Can you guide or recommend me where I should start off? How id you get into this type of real estate business?
Just google. You’ll find people that buy/sell notes. There are a few exchanges out there. The basic idea is someone has a note at say 10% over 10 years. They want their equity out now. So they discount the note so the buyer has a 13% yield and sell it. It’s very similar to the bond market really. If you understand bonds concepts such as coupon rate, YTM, effective yield, etc then you’ll be fine.
The exchange concept is definately alive and well. I currently see deals paying returns of 35-50+% annually on real estate deals. What a way to enjoy the returns without the risk and hassle.
It’s a new world out there.
Tony