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Seller financing is one of the great techniques to No-Money Down purchase transactions. It is inherently honest and if done properly is the product of a fair negotiation which a savvy real estate investor can gain favorable terms. An investor locates a property and a willing seller. The investor establishes that he is a good credit risk and will pay for the house over time. A smart seller will negotiate a high price, a high interest rate and a quick payback. A good investor will negotiate the opposite of each one of those. In fact, experienced investors do not even mention "interest rates" to sellers. Once negotiated, the buyer is granted the deed to the property and owes payment to the seller. Technically, a note should be drawn and if the seller is informed, he will insist that a Deed of Trust (lien) be placed on the property. A Deed of Trust ensures that the investor cannot sell the property without paying off the loan to the seller. It is rarely if ever practiced in this form. COMMON SELLER FINANCING SCENARIO That is an unfortunate fact. Seller financing has taken on completely different meanings, none of which are necessarily wrong. However, seller financing can sometimes be associated with mortgage fraud. Let's look at another use of seller financing. When buying a home from a distressed seller for $40,000, the investor is able to obtain purchase money financing from a lender. However, the investor believes that the home will require $12,000 in repairs. Since "no-money down" investors generally have no money, they negotiate (fairly) a second mortgage lien deed of trust with the seller to borrow the $12,000. The transaction looks like this (ignoring closing costs): Cash from Lender: $40,000 Cash to Seller: $28,000 Cash to Investor: $12,000 As structured, this is an exceptionally wise investment tool (depending on the interest and payment terms). But this is not no-money down, this is better. Get paid cash to invest. A beautiful structure in that regard - receive cash when you sell a house naturally, but receive cash when you buy as well!!! (Note: the amount you receive when you buy reduces the amount you will receive when you sell - the cash in the front is a loan not a grant.) Not informing your lender of the transaction is mortgage fraud. To our knowledge, this type of transaction is rarely discovered by lenders nor is punishment meted out - it pales in comparison to the fraudulent relationships between speculators, mortgage brokers and appraisals in the eyes of the enforcement community. Be clear, that doesn't make it legal nor safe nor advisable. Some hard money lenders do allow this type of transaction as long as it is disclosed. Why not, they are getting the easy risk - the seller is taking the second mortgage lien on repair money with which the investor is walking away from the closing table. HoustonRealNews' parent has a hard money lender as a client who was involved with multiple transactions including seller financing second and third mortgages. Our client earned money on lending either a first mortgage in a purchase money transaction with a seller second, or a second mortgage behind a "subject to" first and in front of a seller third mortgage. What happened with the seller mortgages happens in every industry and proved to be a boon for the new owner of the property... THE BIGGEST POSITIVE OF SELLER FINANCING In our corporate transactional histories, we learned a key lesson in rainmaking. One deal begets another. Borrowing on a seller financed note is one negotiation. We have found that at some point, most people involved in a financial relationship have a desire to get out of it. By desire, we mean "willing to take a discounted payoff." When the bell rings, answer the door. The investor often finds the seller who at one time did not mind financing your investment, now needs cash. Through our client's experiences, we saw this occur with seller financing as well. No money down techniques do not prepare investors for capitalizing on that part of the seller-financing opportunity. Having cash or sources of funding at your disposal will. If you have questions and would like more dedicated and one-on-one/small group education, we can set up live in-person or on-the-job learning sessions - upon request or at a regularly scheduled time. 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