This is where you adjust the terms to meet the cash flow and that is where playing with the numbers on the financial calculator is so beneficial. You still give the seller their selling price if they are fixated on it, but by adjusting interest rate and term length you adjust the cash flow to become positive. Sometimes you have to make interest only payments to the seller until things smooth out.
Posted by Charity on February 19, 2000 at 20:36:44:
I don’t really understand how this owner financing thing works that I read about in the Carleton Sheets and other courses. For instance, he’ll say something like “Ask the owner to take back $30,000 of the purchase price at 10% interest with payments of $200 a month.”(These numbers I pulled out of thin air) But I can’t figure out where he gets the numbers. As an example, let’s say I find a property and the owner is willing to do 100% financing and the price we agree on is $60,000. How would I go about figuring my payments if the seller wants 10% interest?
Number two: If you agree with a seller or even a private mortgage investor to take a loan in the amount of, say, $45,000 for 10 years at a certain rate of interest and one of the plays you use is to explain how much money they will make over and above the loan over 10 years. Well, if you decided to rehab the property and sell it 4 months later, can you do that?
Third, I subscribe to my city’s Foreclosure Report that comes out monthly. I am having a difficult time getting any info from the attorney and I can’t find the owner’s numbers most of the time. Short of going to the door, is there anything I can do?
You need to buy yourself a financial calculator. These are under $30 and easily available at Target,etc. There are also financial calculators available all over the web that you can download or use right at the site. A last resort is to buy an Amortization book at the bookstore for a few bucks in the financial section.
If you know three values out of four you can compute your answer. The values are PMT,PV,I/Y,N.
For example you have (from number two)-
PV(present value)=$45,000
N (number of payments in months)=120
I/Y(Interest rate per year)=8% -my own number
Answer=$545.97 per month for principal and interest(PMT key on calculator which is the fourth number).
If you pay the loan off early as you would if you refinanced or sold the property you simply pay off the remaining principal(which your calculator also will tell you). Some mortgages have a prepayment penalty in case you pay your loan off early which would add to the principal.
In your top example you used you would owe more at the end than when you started even if it was an interest only loan. You have $30,000 at 10% interest. Interest only payment is $3,000 per year or $250 per month. You would with this example owe $50 more per month than you could pay with your $200 payment.
I don’t know what info is provided in the foreclosure report you receive so it is hard to answer your question.
Please repost on the main board if anything is not clear. This is the guru board so less people see posts than would on Newsgroup I.
Re: Couple of newbie questions… - Posted by robert
Posted by robert on February 20, 2000 at 09:43:53:
i have the same problem. many of sheets examples don’t add up.
if you have 1st. mortgage + the seller holding a note most of the time the rent income doesn’t cover it.
you would have to buy way below market value.
i can’t seem to get a handel on it ?
the #s just don’t add up
Re: Couple of newbie questions… - Posted by Jeffrey Short
Posted by Jeffrey Short on February 21, 2000 at 07:54:11:
Chris had the right answer… but let me add one other thing.
You are looking for motivated sellers…not necessary for homes. For example, you have an area where you know how much homes are worth (comps) and how much they rent for.
Once you know this, you find motivated sellers in your particular area that are willing to sell below FMV. Once you have that, then it is a simple game of playing with the numbers.