Seller Carrying 2nd Mortgage

I’m considering purchasing a package deal of 3 homes and 1 commercial building for 150K from a seller. I’m considering asking if the seller would agree to receiving 75K cash now (I would get a conventional loan for this) and 75K in 3 years in the form of a balloon payment. No payments until the balloon payment comes due.

Doesn’t the seller assume a BIG risk if for some reason I would default on the loan? The bank would get the properties back and the seller would get nothing. Is that how that would work. I will want to be able to reassure the seller that this is a good deal for them and me. Not sure I will be able to do that If I try to negotiate this.

The question I would have on this sort of transaction is why would you take out a first Mortgage? Never hurts to write the offer showing 100% owner financing. The worst they can do is counter offer, and if they do at that point in time offer 75k down and a seller carried second mortgage. And yes to answer your question their is risk involved with the seller. The main thing that you would want to show them is how this will profit them directly. If you show a 100% owner carry at that point and time you can show them that they will make the interest on the transaction over the term of the loan, thus allowing them a higher total profit on the sale of the property. The only question I would ask is are you seeking to hold the properties long term or Flip the transaction? If you need help with how to structure this deal please let me know. OH and also you might want to call a title company and pull an Ownership and encumberance on the property to see what amounts they owe and to whom they owe the money to.

Many lenders want to see that you have “some skin in the game”…in the case you’ve presented, you do not. The lender may balk at that.

Keith

[quote author=bcampbell link=topic=52840.msg259769#msg259769 date=1345048974
Doesn’t the seller assume a BIG risk if for some reason I would default on the loan? The bank would get the properties back and the seller would get nothing. Is that how that would work. I will want to be able to reassure the seller that this is a good deal for them and me. Not sure I will be able to do that If I try to negotiate this.
[/quote]
The seller is in 2nd. That does not mean they will get nothing if you default.

  1. They can step in and bring the 1st current. They then foreclosure and take the properties back with the 1st staying in place.

  2. If there was a foreclosure sale anything bid over what the lender in 1st is owed would then go to the lender in 2nd and so on down the line if there were more junior liens.

  3. The seller who agrees to taking a 2nd position might want to know what sort of 1st is being placed on the properties. That is a point of negotiation.

Thank you for your responses. The example I used of the package deal is just one of the many leads I am getting. I’m putting up I Buy Houses signs and getting a good number of calls. I found out some info about these properties that will probably cause me not to pursue this deal. However, I will be meeting with the seller just to find out what his bottom dollar is for a possible wholesale deal to another investor.

I wasn’t sure how much risk the seller takes if they take on a 2nd morgtage. Sounds like quite a bit.

I do have another property that I hope to purchase. A house that has an ARV of low 80s (need to verify this with a realtor) and the seller wants 65K. Needs around 3K of work. I would flip this property.

Seller owns free and clear and may be interested in owner financing. I have access of around 10K in credit cards and a LOC if I have to come up with a down payment but need to leave some for repairs and holding costs.

I would be interested in some help with structuring the offer to the seller. Any suggestions?

Thanks!

Honestly $150k at 4.25% would pay them $273,610.07 over the course of 30 years. So instead of making $150,000.00 they would make an additional $123,610.07 over the term of the loan. That is how I generally explain the seller carry to the Home Owner. And your payment would be $760.03 a month this would be all positive cash flow for the note holder. And like BTL pointed out this will leave them in 1st position so they would have all rights on the foreclosure. Also I sent you a message