Easy one for John ... - Posted by Redline

Real Estate Investing
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Posted by Redline on January 26, 1999 at 13:12:09:

Well, OK then. I thought the idea was that you’d approach the seller first to see if he wanted/needed to sell(discount) his note. If he did, then you buy the note and essentially the property at a good LTV. Kind of like buying a property with liens/judgements and negotiating them down for profit.

Now I see the point. Thanks.

RL

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Easy one for John … - Posted by Redline

Posted by Redline on January 25, 1999 at 12:35:52:

John,

In your article “How to pay full price and profit” you mention about how it’s important for you to get the note holder to take something OTHER than the property you’re buying as collateral. Why? When you purchase the property from the seller, and then you get the note holder to discount the first, aren’t you essentially done? You’ve now bought the property at let’s say 71% LTV.

A little confused,
RL

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Lessened Motivation - Posted by John Behle

Posted by John Behle on January 26, 1999 at 14:44:47:

You create a note to the seller like in a normal seller financing situation. Instead of giving him his own property as collateral for the newly created note, you give him another note as collateral (which you buy at a discount).

The property seller doesn’t take a discount, it is the seller of the note you buy (to use as collateral) that takes the discount.

Sometimes people have taught that you can give the seller his own property as collateral and then substitute some other collateral later. It sounds good - and can happen sometimes - but doesn’t really translate from the “Podium to the Pavement”.

In real life, once you have solved the seller’s problem by buying their property, their motivation to be flexible, creative or work with you is long gone. Yes, you can have them agree to a substitution of collateral, but it can be a pain to enforce. It’s always better to get them off of the collateral that they are emotionally attached to while you have bargaining power.

In substitution of collateral situations (particularly the “Paper Trade”) sellers many times ask what why they can’t have their own property as collateral. Sometimes the answer just has to be a blunt “Because I did not OFFER you your own property as collateral.”

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Re: Easy one for John … - Posted by Bud Branstetter

Posted by Bud Branstetter on January 25, 1999 at 21:52:24:

The seller would have to be a little confused to do what you described. Sell his property owner financed, then take 71% cash for the note. What you will have done is take a note on another property that you only paid 71% for that note. Then you get them to accept that instead of the note on their property. Now their property is free and clear. Refinance it to get your cash back or many other things.

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OK, Type slower… - Posted by Randy -IL-

Posted by Randy -IL- on January 29, 1999 at 14:54:23:

or maybe type faster to answer all my questions. hehe. I’m starting to get a handle on some of the deals here. Sorry, I couldn’t find the article.
In the example in the post here, you buy the property for 100% (or close to it). There is a note created which is secured by the paper you bought at a discount. Which leads me to a few points for clarification:

  1. The discounted paper used as collateral is financed 100% from your funding source?
  2. The created note for the purchase is held by the seller? It isn’t sold too?
  3. There is most likely a positive cash flow from the discounted note right? That cash flow could help pay the note to the seller of the house? or,
  4. Since the house is not mortgaged, one could get a 70-80% mortgage w/ NMD to recover the purchase costs of the discounted note?

OR MAYBE, I’m making a mountain out of a molehill!

Thanks,
Randy

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Re: Lessened Motivation - Posted by Redline

Posted by Redline on January 26, 1999 at 15:40:26:

Thanks John - makes sense now. Another tool for the mind …

RL