Chris:
I am not sure what mean by same “rules”…? Creatively using “paper” to get into and out of properties allows for a lot of different deal structures.
If you were to ask me to consider the purchase of a Property sellers newly taken back 1st lien Mortgage & Note where the property was purchase as an investment, it was also in VERY poor condition, the proposed Note payor did not have any of their money at risk in the form of a down payment into the deal, and there was NO history of how the Note was to be paid - I would say that just about any PRUDENT investor would consider this type of a deal to have a fair amount of RISK associated with it…
However what if you bought this home for $20K +/- you only had to put down $2K in cash, the sellers agreed to take back (2) two Notes- a 1st lien Note that could be sold to generate an additional $8K - $10K in cash to them at the time of closing (which is close to 50% of their asking price in cash to them at the time of closing) and then the rest to be repaid to them later on down the road AFTER you have rehabbed the property and sold it, refinanced it, or lease optioned it, etc.
This type of structure becomes far more palatable.
So, the possibilities are utilizing “paper” with Real Property can become limitless as long as the investor (like Sunvest) who is being asked to purchase the “paper” can be comfortable that they will be repaid and are adequatly secured.
Buying homes, seasoning cont. then sell note? - Posted by BILL TAYLOR
Posted by BILL TAYLOR on October 08, 2003 at 21:15:41:
We buy a lot of homes and I am thinking of selling on contract, sesaoning the note for a period of time and then selling on the market. What kind of discount should I expect and how long would I need to season the thing for the best price on my note. Also what kind of credit score should I be looking for from the buyers? I have been doing lease options and would rather turn my money faster.
Bill:
With some judicious screening on your part BEFORE you sell to one of your prospective buyers and agree to carry the “paper” - IF structured correctly the seller financed Notes, contracts, etc. can typically bring from the low 90% range to sometimes as much as 95% of the outstanding receivable balance owed.
Your focus will need to be on dealing with prospective buyers who have REAL money to put down, decent and stable employment, a “reasonable” overall credit profile, and credit scores perferably no lower than the 575 range and depending on the LTV-loan to value financing you are offering even higher than that.
Most folks find out after time that there is a tremendous amount of future UNCERTAINTY when selling a property under a lease option type arrangement as often these so called “tennant Buyers” cannot fufill their purchase of the property.
Re: Great program to consider and does work - Posted by Chris(Indiana)
Posted by Chris(Indiana) on October 10, 2003 at 23:24:04:
Michael,
It seems as though the buyers you speak of are conventional buyers. Buyers who could more than likely get a conventional loan.
What would u think about using the L\O and then after the term is up( and the tennants have made on time payments) you create a note at that point and sell it on the market. Would that then help with some seasoning issues and still bring a value for the note…just a thought…
Chris:
You are on the right track…we have advocated considering the use of “rolling” a tennant buyer who is trying to fufill their purchase of the home they have under a lease option type purchase into an OWNER FINANCED sale - whereby the owner of the property is actually offering to finance the buyer themselves.
The proper structure of the owner financed “paper” will then allow the property seller to convert such an instrument of indebteness (the owner financed mortgage, trust deed, or contract, etc.) into a cash lump sum payout.
This is an exit strategy more and more property owners should consider when the would like to provide incentives to their tennant buyers, or assist their T/B’s to actually complete the purchase of the property.
Our firm (Sunvest) has been involved in numerous transaction just like this over the years and this “theme” we see all the time.
Re: Well how about this one? - Posted by Chris(Indiana)
Posted by Chris(Indiana) on October 13, 2003 at 18:33:34:
Thanks for your help Mike. I do have some other questions though. What are the limits of “Paper”.
Example:
A buyer and I agree on a price of $20K(Junker) on SFH used as rental property. If we worked with a note buyer could this be structured as a no money out of pocket deal for me where he sells the note at close for a good LTV? That way I get around putting money down on NOO property and they still get a lump sum of cash.
Would a note like that be too small? Is something like that possible? Or do the same rules apply where I HAVE to put money down?