Yes and No… - Posted by Michael Morrongiello
Posted by Michael Morrongiello on May 03, 2000 at 17:04:05:
Generally, to make the numbers work where one is using notes and the discounting of the note(s) to generate cash to a seller a property has to have a decent amount of equity in it or be almost free & clear.
Here is a deal I did several years ago with a motivated seller who own their home free & clear and was asking $60K for it.
I agreed to pay FULL PRICE for the home $60K
The seller was to take back (2) two notes;
A $15,000.00 1st lien note @ 10% fully amortized over 120 months, $198.23 per month and a $45,000.00 2nd lien note that was payable at $350.00 per month over 180 months.
The reason I got these terms on the 2nd lien is that I informed the seller that I was an investor and was not buying the home for my use and that I could NOT under any circumstances pay more than $550.00 total per month in mortgage debt service. If you plug that into your calculator you will see that the interest rate on the $45K 2nd lien is “good enough” and I was building equity quickly with the pay down on both notes.
The 1st lien note was sold for CASH to an investor at closing and the seller viewed that as her “down payment”, she carried the rest in the form of her 2nd lien.
This was a NO MONEY DOWN deal. The reason the note investor agreed to fund the purchase of the $15K 1st lien note is because it was SO secure.
I never missed a payment on either of those notes and eventually purchased back my 2nd lien at a large discount when the elderly seller passed away and her heirs did not want to collect the payments…
If you get the concepts here, you will see WHY paper and understanding paper becomes something very powerful to have in ones deal making “bag of tricks”
NOTE: . Using this technique NEVER abuse or take advantage of the seller who is holding subordinate financing as it would ruin it for many of us. Do the right and honorable thing, make the payments and make them each and every month timely.
Happy Hunting and have some fun…
To your success,