Owner Financing offered to me

General Real Estate Investing
1

so my fiance and i found a nice little home being sold by a woman who wants to sell her home and carry a note.

she clearly stated she wants to carry note because she does not have a mortgage on property and does not need the money now. she mentioned something about asking the going rate for interest and would prefer a 20 year mortgage, but 30 year would be acceptable.

so,

i threw some numbers around.

what do you all think about deferred interest for say, 24 or 36 months - say a 7% loan with 2.5% being deferred for 36 months?

I just want a lower monthly payment.

oh yes and she would accept 10% down.

it’s sounds like a very advantageous opportunity for my fiance and i, because

  1. we only need 10% down
  2. Closing costs would be about 4 - 5k cheaper.
  3. the Interest will still be able to be claimed (as per seller).
  4. no prepayment penalty.

the question is, how do I sell the seller on the idea of allowing the 2.5% of the loan to be deferred for 3 years???

I thought of maybe paying a marginal “fee” to defer the interest. And then maybe a clause in there for another opportunity to defer it further down the road.

help me out. any other creative thoughts?

2

dude,

you’re going spook the Seller with what she might see as “strange” contract terms. Follow the KISS princple—Keep IT Simple Stupid!

IMHO, I would offer 6.75%, 0 pt, no prepay. Plus it will mostly like not show up on your credit report. If she will carry 90% at those terms you have a very good deal. Forget about all this screwing around with deferred interest, etc as its small amt of the monthly payment.

If you want to pass, just send her over to me and I’ll jump on it.

Mike

3

TMCG,

Again, the cart before the horse! Who finances the deal is irrelevant. Is this even a deal? Do the numbers work?

AAK,

“If you want to pass, just send her over to me and I’ll jump on it.”

TMCG didn’t post any numbers. Why would you “jump on it”? Is everyone so desperate for owner financing that they’ll buy any property at any price as long as it’s owner financed? That doesn’t make sense to me.

Mike

4

sorry for misunderstanding.

no, this home would be our home to live in - not an investor home.

it would save us on:

Money Down
Closing Costs

and

If the seller is flexible on terms, over the course of time, interest deferral and some other creative things may save us 1000’s.

The house is in a very nice area. The only draw back to it, it is a very small 3 bedroom. I’d say no more than 1000 sq ft. With no garage.

we will probably pass on it because of the size of home, but then we have to come with all of the above and overall, it will cost us 1000’s more to buy a home even 20,000 less than this one just due to interest rates, money down, and closing costs.

make sense?

5

What is the market value?
What are the average rents for like property?
How do you plan to save 1,000’s with interest deferment?

You said we will probably pass on it. So why are you wasting your time, the sellers time, and all the great coaches on this forum!

It’s all about respect for others and time, it’s about being a professional!

You will find that if you keep this up most true investors will stop making replies to your post “HINT - HINT”.

6

john,

read my last post. this is not an investment prop. it is a home i am considering.

also, this is NOT an area where you would rent, unless you get it seriously distressed/foreclosure.

john, i’m on long island. rents do not exceed average monthly mortgage costs, unless the above applies or you’ve got 125k to put down.

to learn more about the area i live in, read some posts re: realtor/attorney strangle-holds on REI and go to MLSLI.com.

hello…

aak,

i didn’t read your post, must have skipped it. i hear what you’re saying, but 2.5% deferred will save us about $275 or so a month interest for 24 or 36 months. for 24 months, that’s $6600 in interest.

7

my statement was a figurative one; not literal. however, plenty of deals stink, but if you can find one that looks interesting , then dig in and start to vet it out. Owner financing can save you plenty of money and is a whole lot easier than dealing with institutional lenders

8

Sorry but a personal home is still an investment as it is considered an asset is it not.

This is a real estate investing site so I made an assumption that you where a real estate investor.

I am familiar with your market area and I will disagree with you that rents do not exceed average monthly mortgage costs!

So are you telling me that no investors are making money with mortgaged hold properties and that all rentals with a mortgage are loosing money?

I can see that you do not understand your own market. I would suggest you take some basic real estate training before you jump and would highly suggest you join and attend you local REI club in your area.

9

john, it seems you have it out for me.

i post on here regarding both rei’s and my personal search for a home.

no, your home is not an asset, unless you have it providing you positive cash flow (renting portions of it out). a personal home is a liability because it takes money OUT of your pocket. it is listed under the asset column, but it shows as a liability, and it shows up every month in your wallet and under your expense column. it is an expense, therefore it is a liability.

secondly, there are many investors who have positive cash flowing rentals in this area. they have either
a. put sufficient money down to limit their debt service costs.
b. paid cash for the property.
c. owned it for a very long time and have since either paid it off or have refinanced for a marginal monthly payment or their payments to begin with were small in comparison to rental incomes.
d. purchased foreclosures.
e. bought distressed properties - in most cases we’re talking a 200,000 dollar mortgage and after expenses - are cash flowing about 50 to 100 dollars a month (not necessarily ideal ratio) or they are breaking even or slightly bordering on intermittent negative cash flows.
f. owned 2,3,4 or more unit apt buildings with good cash flows

that about covers most of it. this market here on Long Island is a huge “flip” market. Many, MANY investors are focused on rehabs and selling. I’d say for every 5 houses i look at for my personal residence, 2 are straight up rehabs - and they follow the bronchik/sheets etc. method of BASIC rehabbing. i walk into these houses and in 5 seconds tell the realtor, we’re done, let’s move on, because most of the work is soooo freaken shabby.

i have nothing against your opinion about the market here or my understanding of rei. and your’e right, i do need to join my local rei club. i just don’t know why you’re harping on my post.

:stuck_out_tongue:

10

OK you win - a home is never an assett???

WOW I wonder what equity is ::slight_smile:

Good luck on your REI adventure, must be hard dealing with an area full of bronchik/sheets rehabers and realtor/attorney strangle-holds on REI in your area.

Used cars may be a better way to go :wink:

I must just be lucky with my investments in the area :stuck_out_tongue:

Well I best go for now :-X the word!

Good luck

Area market info

Nassau County
http://www.mlslirealtor.com/pdfs/nassau_stats.pdf
Suffolk County
http://www.mlslirealtor.com/pdfs/suffolk_stats.pdf
Queens County
http://www.mlslirealtor.com/pdfs/queens_stats.pdf

Annual Home Prices for 380 markets
http://www.localmarketmonitor.com/Home%20Prices.xls
Home Value Ratings for 100 markets
http://www.localmarketmonitor.com/HomeValueRating.xls
Risk Return Ratings for 100 markets
http://www.localmarketmonitor.com/RiskReturnRatings.xls
Foreclosure Risk Ratings for 100 markets
http://www.localmarketmonitor.com/ForeclosureRisk.xls

I better go before I start picking on you again :-[

11

Great stuff John, thanks.

12

JohnMichael,

"The increase of net worth from an appreciating asset like a house only exists on paper. So a house is an asset and is included on personal net worth statements, but not all dollars are created equal. It’s undeniable that $500,000 in the bank is better (or more useful) than $500,000 trapped in the value of a home.

On a financial statement those figures are treated equally." Looks to me like a house is an asset.

John $Cash$ Locke

13

<<Looks to me like a house is an asset.>>

I’m thinking that it is, too…at least mine seems to be.

Keith

14

Assets and liabilities are accounting terms that have specific definitions. Robert Kiyosaki in Rich Dad Poor Dad defined assets and liabilities for his illustration purposes. Buildings and land go in the asset column. The mortgage owed goes in the liability column. That means that the difference nets out to yield net worth. Using Kiyosaki’s logic, your wife kids and pets are liabilities since there is value in them that you can’t get out. We need to sell them as slaves.

Of course a home is an asset. But it is not a part of your money making ongoing business. That business allows you to live a certain lifestyle. That home is a part of the lifestyle. You need to buy the home that you want to raise your family in. You buy the neighborhood, the schools, the tree lined streets. You don’t want to go cheap on your personal home that leads to miserly actions.

15

Consider offering 5% down, forget the deferred interest and use the other 5% to buffer the higher mortgage payments for awhile. Also, prevailing owner occupied rates in your area should be your mortgage rate.

I like other people’s money too, and although I am tempted to pay a little higher % to bypass all those closing costs and conditions from conv lenders,I haven’t had to. I have found people are owner financing for a reason…and not usually to do you a favor. They usually come around for a serious buyer.

I agree with Mike not to mess around with the deferred stuff unless the person is savvy. It tends to make the inexperienced uneasy.

Also, consider a lease option with a non-refundable deposit for seller security.
Then you can walk away if you want/have to but possibly have some appreciation when it comes time to buy and you won’t need a down payment or seller financing. Lot’s of choices if you can negotiate.

JeffInCt

16

jeffinct,

thanks. i did not consider the possibilities of L/O. Good idea.

As for the “house is an asset/house is a liability” issue - to me, i constantly talk to people who “take out equity” of their home to do…whatever, pay for a daughters wedding, put kids through college, side the house, pay off a car, consolidate other debts, etc.

that is the ONLY way to realize the equity in their “asset”. Of course a personal home is an asset, because it is something that CAN generate money, whether you use a refi, HELOC, or sell it. But, the fact remains that “net worth” does NOT put money in your pocket. It can provide you with many opportunities to borrow and OF COURSE, it is better to have a positive and healthy net worth, but many people consider their own personal home as a straight up asset, which it is not. It’s WRONG for people to be sold by advertisements that say

“You’re HOME is your NUMBER ONE ASSET.”

Sadly, it is and can become, very quickly, their NUMBER ONE LIABILITY.

So many people in my area and areas all over the country are suffering from a LACK of equity in their home because they have “borrowed” all of their equity and then ran into one kind of trouble or another and are being foreclosed on. And what is equity anyway. Equity/net worth - DOES NOT GENERATE consistent CASH. Most people do not use their borrowed funds to make investments that generate cash. If they did, then YES - now they would be using that equity and net worth to EARN $$$ or more true ASSETS.

I think of Assets like I do a business. I built a small company up from scratch with my partner. We developed the customer base. We purchased the inventory. We developed and maintained billing and our CPA managed our financials. Our Lawyer helped sell the business.
We developed an Asset that made us money and eventually, we sold it because “it” [the company] became it’s own entity. It became an asset for my partner and I to earn money from. We sold it, unfortunately due to personal reasons. But the sale was still financially beneficial.

Borrowing and using your own after-tax dollars to pay off the mortgage on your personal home is just not what i consider an asset. It’s an expense. It takes money OUT of the pocket.

And children and family are liabilities too!! Especially wives [and husbands]!!! ;D

17

John seems to have a little bit of a “knowledge” chip on his shoulder as in he must demonstrate he has more knowledge than others. Pretty sure this is the same guy that on another site says he welcomes “healthy debate”. People can disagree…and its not a zero sum game…meaning just because there’s a disagreement doesn’t mean someone has to be wrong. Chill out bud.

Lee