Carleton Sheets course question - Posted by Joe B.

Posted by Joseph Melvin Jr on March 19, 2001 at 16:58:21:

To the point, some owners simply want to get from under paying a note. If they have you to pay the note and they are getting a percentage monthly they are happy. There is some risk that the buyer may default but the second mortage holder can forclose and keep the property if he/she has been tracking the monthly payments. To catch all of what Carlton is saying you may have to do like I did and listen to the tapes/cds three or four times. I may have to listen to him again myself… Remember; What does not bankrupt us makes us richer.

Carleton Sheets course question - Posted by Joe B.

Posted by Joe B. on March 19, 2001 at 07:55:07:

I’m almost through with Carletons Sheets “no money down” course and have a couple simple yet big questions.

If I’m the buyer - working with the seller… why would a SELLER want to take back a mortgage or 2nd mortgage - and why would he/she take a note from me - the BUYER???

If I were the seller - I would want to sell - clear and free?

What motivates the seller to re-finance for the buyers benefit?


Re: Carleton Sheets course question - Posted by Greg

Posted by Greg on March 22, 2001 at 23:22:22:

A couple of points that haven’t been mentioned. If the property is a rental already, the seller can spread the tax on his gain over time - he only has to pay taxes on the amount he receives in a given year. Better to spread it out than to get whacked by Uncle Sam all at once.

Another good reason is the management free cash flow that seller held financing provides. The owner goes from receiving a cash flow as a property manager with associated headaches, to a note holder that simply receives cash flow (cash flow is where it’s at).

Finally, if the seller doesn’t want a note, he can sell all of it, a portion of the payment stream, a portion of the balloon, or a combination of them. Lots of benefits in seller financing for both parties. As a collateralized security, it is very marketable and liquid.

Re: Carleton Sheets course question - Posted by Judith

Posted by Judith on March 21, 2001 at 02:18:11:

The questions you pose epitomize the fear and discomfort a lot of sellers will inevitably experience when confronted with unfamiliar financing proposals. You absolutely need to understand this in your own mind before you can sell the idea to the sellers. To answer your questions. Why?

  1. because he really or maybe desperately wants to be rid of the property.
  2. carrying finance will help sell his property and make it accessible to a much much larger group of potential purchasers - those who wouldn’t otherwise qualify for a mortgage through the conventional channels. In a nutshell, taking back a mortgage will make it easier for the seller to sell the property quicker.
  3. The seller is in theory willing to take a note from the buyer, but surely not just any buyer. He should at least check the buyer’s credit before he agrees to carry finance.
  4. Your note will be collateralize (i.e. secured) by you giving him a mortgage on the property. If you default, he can foreclose on you, sell the property to get his money back. His risks are greater however if he holds the second mortgage however.
  5. He does not have to hang on to the note that you give him. There are many discount houses and the like who will buy notes for cash. He might be able to get 70 to 80 cents to the dollar for the note if he sells it for cash, depending on the interest rate on the note, the buyer’s credit and the seniority of the mortgage.
  6. He can also use the note as a down payment for another property or as collateral for a bank loan.
  7. If the property he is selling is not his principal residence, he can also defer his tax liability by taking a note and not all cash outright. the sale will be treated as an installment sale.

That’s all the reasons I can think of right now. Hope it helps.

As to why the seller would prefer to sell “free and clear” - I am afraid you are confusing the issue here. The seller should not care whether the buyer owns the property free and care or not. If you get a 100% mortgage from a bank to buy the property say, he gets all the cash and you the buyer don’t own it free and clear. It doesn’t matter to him. Do you see? The issue in question is whether he gets cash now or later, over what period of time. Security and risk also matter to the seller. He needs to feel that his cashflow is secure and that any risks (of you defaulting on the payment)he is willing to take will be adequately compensated by the interest you will be paying him.

Hope the above helps in clarifying the concept.

Re: Carleton Sheets course question - Posted by Dave A. (TX)

Posted by Dave A. (TX) on March 20, 2001 at 16:05:57:

They probably won’t take a note from you. In his tapes sheets says rei is just a numbers game. You call on 100 ads in the paper for houses, drive by 20 of them, then make maybe 5 offers. Pretty time consuming but that is just the way it is.

Re: Carleton Sheets course question - Posted by scotty P

Posted by scotty P on March 19, 2001 at 12:32:58:

OK, but, now the seller is taking a risk in the buyer and the buyer then must have credit and net worth. If the buyer defaults, then the seller then has an even larger headach.

Re: Carleton Sheets course question - Posted by Greg NY

Posted by Greg NY on March 19, 2001 at 09:19:09:


You asked, “What motivates the seller to re-finance for the buyers benefit?”

The answer to this is simple… they are MOTIVATED, by some “problem” in their life. Whether its behind on payments (they want to save their credit), divorce (they need to get out), vacant (unwanted bill), and so on and so on.

A lot of sellers that are motivated aren’t really thinking about how much they can get, but how fast they can get it. They want someone to take the headache away as soon as possible. They are happy with just coming out even. I mean you can’t blame them, its better than losing money.

Thats why finding motivated sellers is the KEY to this business. Good luck and have FUN!

Greg NY

Re: Carleton Sheets course question - Posted by Greg NY

Posted by Greg NY on March 19, 2001 at 13:03:43:

If you perform you due diligence, and look at all the numbers, a deal will work. Will you run into problems? Yes, but you’ll learn.

You say you’re worried about risks, that’s part of the business. Due diligence will take some of the risk away, but there will always be some form of risk. That’s why I LOVE this game!

Good Luck

Greg NY