I AM THINKING ABOUT BUYING INVESTMENT PROPERTIES AT A DISCOUNT, DOING RENOVATIONS TO INCREASE MARKET VALUE, OWNER FINANCE FOR FULL MARKET VALUE AND INSTANTLY SELLING THE NOTE FOR PROFIT. IS THIS POSSIBLE AND IS IT LEGAL?
IF SOMEONE WILL BE SO KIND IN ADVISING ME ON THIS INVESTMENT STRATEGY.
THANK YOU SO MUCH!
Laws for owner financing/land contract/cash for deed vary from state to state. You need to see what they are for your state.
Once that’s handled, then you need to see how much demand there is for notes like that. You will have to sell them at a discount. How much of a discount varies on many things. You’ll want to understand how it works and minimize the discount. The question is after that discount will you still make a profit?
I’m curious why you’d owner finance if you are just selling the not anyway. Why not just sell for FMV and let them get their own financing?
Thank you for the information. One of the reason I am considering this strategy is because I am using my own cash to invest with. I don’t want to hold property for an extended period of time. I would rather sell the note at a discount, take the profits and continue to flip as many properties as I can using this strategy. Where can I find information concerning the investment laws in my state?
What state are you in? Someone should be able to answer your questions. Why would you want a note at closing and not be cashed out, unless it’s necessary to facilitate a sale?
I am in Louisiana. I will receive cash at closing. This strategy is a way for me to receive a quick return on my investment by offering owner financing. I will basically buy properties at a discount, renovate, sell for FMV, create and sell the note simultaneously. Take the profit and repeat the process. Is this legal? Does this strategy make sense?
It doesn’t make sense. I’ll try to explain why.
If you can sell for FMV, then it’s more beneficial. You’ll get a check for FMV - selling expenses. If the house sells for $100k (after commission, sellers concessions, etc), you get a check for $100k.
If you do seller financing then sell the note, you’ll actually receive less than FMV for the home. If you have a note for $100k at x% interest, you have to discount it to sell it. You will get less than $100k for the note.
You’re not getting any return from owner financing in this scenario. It’s actually reducing your return.
Owner financing makes sense if you need it to sell the property (buyers can’t get financing for it), or if you prefer monthly income.
You make an excellent point. The only thing is I am not in a position to buy and hold a property in order to get FMV. If I can move a property quickly and receive FMV, I would. I need to make a profit and fast. I am willing to take a discount and concentrate on volume. If I flip enough property, I will put myself in a position to buy and hold property in the future to receive FMV. So the answer to the question that started all this is that you can do a simul-flip. Is this correct and do I have to worry about anything illegal about this technique?
If you purchase a “fixer upper”, get the deed in your name BEFORE you start. Therefore, it would not be a flip with your name on the deed for a few minutes. Fixer uppers are cash intensive & are best structured with mostly seller financing on good terms. Use as little of your own cash as possible. You want max leverage to increase your returns.
If you want to sell a property quickly, this usually requires a discount from FMV unless you are in a very hot market. Therefore, if you plan on selling quickly, consider this as a cost of doing business. Know your market. How long are similar properties on the market on that part of town?
I would concentrate more on quality than volume staring out. Doing only a few very profitable deals as a newbie reduces your risk. Once you have more experience you can take on more projects.
Your best source of information is your local real estate club. Who would be better to answer your questions than someone who is doing it in your market? 
In Christ
You should try more of a bird dogging approach. That or maybe wholesale properties. That way you don’t need the cash to do the repairs etc. You find the deals and then pass them on to investors with cash for a fee. Once you get enough cash, then you can keep some deals for yourself.
I think you’ll have a hard time selling your note without a payment history behind it. The discount would be big and you wouldn’t make out well.
Thank you guys for the advice! I have another questiion? There are so many foreclosures in my area. Can someone give me the short version about the process of dealing with pre-foreclosures. When I go to the courthouse, I see so many listings of foreclosures and the different default amounts. I know there is an opportunity there but is it worth the time trying to obtain properties using this method?
I read a book, “The Complete Guide to Investing in Foreclosures”. It explains the mechanics better than most books I’ve seen. Most are just buy foreclosures cheap, sell them and make money, rah rah.
The key is to contact the owner. Everything has to go through the owner in preforeclosure. They’re probably getting a lot of post cards and letters from other investors. That’s where marketing will help. Then once they contact you, you can evaluate their situation and see if something is workable. That’s where you get into short sales, subject to, etc.
Some people go door to door to do it too. There’s been some talk about this in the past on good approaches. I think the consensus on the best approach was just to say that you’re an investor that buys houses in their neighborhood and ask if they know anyone that may want to sell.
Thank You!