getting out of deals - Posted by george

import · February 24, 2001, 11:49am

Posted by Voc on February 27, 2001 at 24:34:03:

Mike,

I agree it may be time to move on from this discussion. But the one thing I do not appreciate is your constant efforts to shade the real facts & make it seem as though things were different than what they really were.

In your first response you said there was no way that the buyer’s credit scores were 700+. I proved that statement wrong by giving you his exact credit scores. You can check your files.

Then you said I conveniently left off the fact that I was doing a flip/simul. close in my post. Yet it was right there in my original post. Besides, what exactly is the difference between a simultaneous close & a flip anyway? Isn’t it basically the same thing? A simultaneous close is a flip. I can’t think of how it can be anything different.

Now you try to make it seem as though you never knew that I didn’t own the property. Michael, you knew from the first 5 minutes of our very first conversation that I did not own this property & only had in under contract. I can tell you for a fact that that was one of the first 3 or 4 questions out of my mouth. How do I know this? Because I remembmer that this was one of the questions that I was trying to get quickly answered over the weekend, along with how to set up the contract. You’ll recall I was trying to get in touch with you on the weekend & you told me that you tried not to work on weeekends. During this very first conversation is when I laid out everything about the deal to you, except for specific buyer info. which I didn’t have at the time. During this same conversation, I asked you what would be the best way to structure everything. I also asked other questions as well. I knew from reading the boards what the hot points would be & I tried to address each & every one of those with you. I’m not a novice at real estate. I’ve been a broker for 8 yrs, so I know the real estate business & I know what the potential problems are & thus tried to address them all.

Anyone who knows me knows that I am very thorough with my questions & knows that I ask lots & lots of them. Example: How many times did I call you about this deal? Do you recall? It was pretty often, right? Didn’t you get tired of me asking so many questions? Probably!

So Michael do not make it seem as though I was hiding anything from you, because you know better than that. You also knew everything that I knew about the buyers as soon as I found it out. How do I know this? Because everytime I learned something new I was uncertain how it would effect things. So I’d call you & ask you. You know that! Unless you want to deny that as well.

Finally, you’re right about the buyer’s income. Although he did take a regular salary from the corp. he did not take enough to qualify for a regular Fannie Mae mtg. Even though he took a decent income, it still would not have been enough to satisfy the ratios. We agree on that. But still it was a decent income. Besides, don’t you stress that one of the major advantages of what you do is to buy notes that Fannie Mae doesn’t want, usually because the buyers can’t meet their strict guidelines? It seems as if you base your decisions on much of the same criteria as Fannie Mae does. If that’s the case, why would a person pay a discount of any amount, if their buyer meets the Fannie Mae guidelines.

I can however understand some of you concerns about there being no title seasoning. I don’t agree with your views or the B/C lender’s views on this, but that’s a subject for a different day. Evidently there can’t be that much wrong with doing a simultaneous close though because the FHA, VA & Fannie Mae will do them all day long (at least in this region & I imagine the rest of the country as well). I don’t want to get on this track though cuz that’s a whole long thread by itself. Suffice it to say though, I do see your point & can respect it.

Michael, one thing that I have absolutely no problem with, at all, is the free enterprise system. I submitted a deal to you & you gave me a quote. You quoted me what you thought was in your best interest & it was up to me to either take it or leave it. You could have said you wanted a 50% discount & it would not have mattered because there was no one forcing me to accept it. That’s how the free enterprise system works. A buyer & seller get together & if they have a meeting of the minds, a deal gets done. If not, they go their seperate ways, each a little richer for the experience. Perhaps somewhere down the road they’ll get together again & have a different result.

That’s kind of the way I’d like to end this. We probably each learned something from the experience (I know I did) & that’s a good thing. Hopefully you did as well.

Best of Luck,
Vic

import · February 24, 2001, 11:49am

getting out of deals - Posted by george

Posted by george on February 24, 2001 at 12:49:38:

I have 2 properties in a town 2 1/2 hrs from my home. I have hard $ loans on both properties.Prop 1 - after repair value is 70K, the loan is for 45K with 8K in escrow for repairs (which should cover them). Prop 2 - after repair value is 66K, the loan is for 40K with 6K in escrow for repairs ( which should cover them ). Any suggestions on getting out of these deals?

import · February 24, 2001, 5:52pm

Exit stratergy to sell fast - Posted by Michael Morrongiello

Posted by Michael Morrongiello on February 24, 2001 at 18:52:26:

George:
Assuming you want to fixed these homes up and attempt to “retail” them for maximum profit, then once the renovations are completed, use SELLER FINANCING as both a marketing and Financing tool to sell these homes FAST.

You offer to sell them, finance them, and then with the right buyer, and structure to the seller financing, you complete the circle and SELL your “paper” converting that to cash.

To your success,
Michael Morrongiello

import · February 24, 2001, 3:10pm

Flip them… - Posted by BillW

Posted by BillW on February 24, 2001 at 16:10:22:

George, Flip them to a rehabber in that town. Call local contractors there and offer it to them. Put an ad in that paper
House for sale, cheap, possible financing included.
You should be able to move them in a few days.
BillW.

import · February 24, 2001, 6:40pm

Maximum profit Michael, really? - Posted by Ron (MD)

Posted by Ron (MD) on February 24, 2001 at 19:40:07:

Michael,

You’ve made these same claims over and over and I’d surely like to sell my rehabs (which are in thi $70k price range) for “maximum profit” and “FAST”.

I suspect your approach may allow someone to sell “FAST”, but hardly for “maximum profit”. Aren’t you really providing an exit for a highly motivated seller to unload a property at considerable cost (i.e., far from maximum profit)?

Maybe I’m wrong, so I’d love to have you provide an example of a typical deal. Please share with us a typical deal in this price range. Suppose I have a buyer with a 500 credit score who needs the seller financing you promote (after all, if he has better credit, he can get cheaper money). How would my deal with him have to be structured and what kind of a discount would you demand? I know, each case is evaluated on its own merits, but surely you can provide a typical situation. So, Michael, on my loan to the buyer, what kind of credit score, interest rate, and LTV would you recommend? Then, what kind of discount would you require?

You see Michael, I think it’s fair to say “maximum profit” or “FAST”…pick one. I don’t think you can really give me both (although suggesting it probably gets your phone to ring…like the ads that we run saying “All Cash, fast” which almost never happens).

So, Michael, take a few minutes to give us the parameters of a seller financing deal that gives us both “maximum profit” and “FAST”.

I’m looking forward to it because it will make my life a lot easier.

Ron Guy

import · February 25, 2001, 3:53pm

Quicker Profits Vs Opportunity costs? (LONG) - Posted by Michael Morrongiello

Posted by Michael Morrongiello on February 25, 2001 at 16:53:24:

Ron:
Offering Seller financing to sell your properties FAST is not for everyone.

Take a deep breath and calm down, my use of the term “maximum profit” was in response to George’s post where it was suggested to him and he was considering and weighing the differences surrounding the sale of his homes on a “wholesale” basis to other investors (which will produce a smaller wholesale profit to him) OR as I suggested, going through with the renovations on the homes and then trying to sell the homes to “retail” buyers for maxium profit. Selling financing is only one option for him to consider using if he decides to try to maximize his profits and go the “retail” sale route. If potential buyers come along and they can obtain their own financing, cash him out on the sale, and he moves the properties quickly in this fashion and this way, then thats great for him.

However as is often the case with many investors I work with around the country and that has happen to me on numerous occasions in the past with my own renovation “flip” deals, it takes an inordinate amount of TIME to market for,attract, locate, sell, and then close the so called “qualified” buyer for my “flip” deals. You may even pay a Realtor a 5% -7% sales commission to assist you in locating such a buyer since they often work with them or will bring a buyer to you. Additionally, this type of buyer and their Realtor will often attempt to push you to negotiate a lower sales price for the home, since they know they can obtain financing and in essence cash you out.

Depending on market conditions where you are, it is not unusal for months to go by while you search for this elusive “qualified” buyer to come along. This is exactly what George was lamenting…

Should he make a quick nickel of profit NOW, or perhaps try to make a Slow Dime of profit over time?

Using SELLER FINANCING to quicken up the overall sales process is a tool that makes sense under apropriate situations.

You are looking for potential buyers that may not even know they are “qualified” to obtain financing from a variety of sources, they might have been turned down in the past by other lenders, or have a distaste in their minds about dealing with mortgage companies, banks, mortgage brokers, etc. They rather deal with “people” face to face that are selling them their home. They may have had some credit problems, self employment issues, income to debt ratio issues, etc. there mentality is; How much do we have to put down? and What are the Monthly payments going to be?

Seller financing is not going to make it any easier for you to immeditaly convert to cash your “paper” and cash out a Sloppy credit, 500 Credit score borrower. This issue along with others surrouding the use of SELLER FINANCING are often misinterpreted by the misinformed. So here is a boilerplate example:

Single family home to be owner occupied being sold to buyers who have reasonable employment stability, a decent overall credit profile, and credit scores in the 575 -600 + range.

Sale Price $70,000
5% Down payment - 3,500
Balance due $66,500
Seller held 1st - 61,000 - 1st lien note to be sold
Seller held 2nd 5,500 - 2nd lien to be retained

Terms for the 1st lien; $61,000.00 to be written @ somewhere between 11.5% -12% (depending on credit issues)to be amortized over 360 months, with perhaps a 120 month balloon payment(not always necessary). With the 12% rate that monthly payment will be $627.45, and the balloon payment will be $56,984.98 in 10 years.

Remember in this Seller financing, there are NO requirements for an application fee, NO Points, NO lender junk fees for undewriting, warehouse fee, document prep, etc., NO (PMI) Private Mortgage Insurance Premium, NO additional moneys needed for setting up the tax and insurance impound accounts, and the biggie, NO PREPAYMENT PENALTY. The reality is that more of the buyers down payment goes towards their down payment, and less extraneous closing costs are required.

This $61,000 1st lien note can often be sold at the SAME time the property closing takes place and where the property / note seller can receive up to 95% or $57,800 +/- in cash from the sale of their 1st lien mortgage and note.

With regard to the smaller $5,500.00 2nd lien note. These are often written with “interest only” repayment terms and then a 3-5 year balloon payment where the full $5,500.00 principal is paid back. With 10% interest the monthly payment collected would be $45.83

To Summarize:

Seller retains cash down payment $3,500.00
Cash from sale of 1st lien note + 57,800.00
Total Cash at closing $61,300.00
Interest collected for 5 years on 2nd 2,750.00
Principal repaid on 2nd lien $5,500.00
Total Pay out Collected from sale of home $69,550.00

Seller is able to Sell the home FAST, often in weeks, and the Seller obtains a TOP DOLLAR sales price for the home of $70,000.00 with little “dickering” since financing is offered. Additionlly Since the seller attracted the buyer with his own “Seller financing” marketing and financing program the seller does not pay a Realtor any commision. At closing the seller collects a very respectable $61,300.00 in overall cash with the rest to be repaid.

The KEY questions one must ask themselves and I believe Ron, you must ask yourself are these;

Will I potentially run into the dreaded “not enough seasoning of ownership issues” that many investors are now facing when attempting to re-sell or quickly “flip”
one of their acquistions?
If I waited several more months to sell this home, to a “qualified” buyer, What would be the additional holding costs I would incurr?, and would I have to pay a Realtor Commision, and pick up some of the buyers loan costs,etc?
Could I get a FULL “retail” sales price, or would the buyer try to “dicker” with me over the sales price?
Would I miss out on other potential & profitable “deals” in the marketplace while my funds and profit were tied up in this unsold home?
Could I buy and sell more properties this year if I could shorten the overall sales cycle from several months down to a month or less?
Is it better to “Earn a quick Nickel, rather than a Slow dime of profit” ?

Ron;
If you goal is to “squeeze” every last miserly cent out of every deal you do, then this program is not for you. However, I think that when you analyze and factor in the “opportunity cost” of having an unsold home sit on the market while you could have moved through it and on to the next project, and perhaps moved through more overall deals per year, you are indeed “Selling FAST” and “Maximizing Profits”.

To your success,
Michael Morrongiello

import · February 25, 2001, 7:42am

Let me jump in… - Posted by Rick Roberts - KC

Posted by Rick Roberts - KC on February 25, 2001 at 08:42:18:

Ron,

You raise excellent points. Your are on to something–notes aren’t the best way to go in all circumstances. They are a very good way to go in certain circumstances. Let me chime in with (3) quick points.

1 - Underlying Mike’s comments is the premise that a properly structured note can often bring 90-95 cents on the dollar. The key, however, is “properly structured”. This includes a first note LTV that is comfortable to the funder. The LTV may lead you to take a portion of your profit in the form of a second note.

2 - In my judgement, the top reasons for using owner financing and selling that financing at the table are:

A) the speed and ease at which these deals generally close (particularly if all facts were on the table up front and you have an experienced/focused closing agent) as compared to traditional lenders

B) the ability of some note funders to handle “quick-flips” with no title seasoning; many traditional lenders are becoming increasingly bothered by no title seasoning

Note that one of the reasons listed above is not the ease at which poor credit folks can slide into a home. A typical payor on a note deal that I see is in the 580-620 range. Poor credit payor notes will face a huge discount unless seasoned.

Rick

import · February 26, 2001, 9:09am

Re: Quicker Profits Vs Opportunity costs? (LONG) - Posted by Vic

Posted by Vic on February 26, 2001 at 10:09:04:

Michael,

Hi! I’m not sure if you remember me or not. I’m Vic in New Orleans. A few mos. ago I was trying to sell a home by offering owner financing then selling the note to you. To refresh your memory, the buyer owned a gutter/siding business that was pretty substantial. This was the one where we had to cancel the appraiser after he sent the check to you because his wife’s sister worked for a mtg. broker & they ended up going through the mtg. broker to get the loan.

Anyway, my question is this. I’ve often seen you talk about discounts on here of 5-6% such as in the above post for credit buyers in the 600 range.

I’m very curious as to why you qouted me a 9% discount on my buyer who had credit scores in the 750-780 range.
The buyer was also putting down 10% of his own money as a down pmt. The note was structured at 11% interest for 30 yrs with a 10 yr balloon, just like your example in the post above. The sales price was to be 160k.

I read your post above where you say a 5% discount for someone with a 600 credit score, yet my buyer had scores in the 750-800 range & you wanted a 9% discount. It was the same type of transaction, namely a simultaneous close. So why did you want to charge me 9%, yet you often quote much lower discounts on this site for much worse credit? Something’s not right. Can you explain this to me?

Note: I’m not trying to accuse you of anything here. I’m just trying to understand how you can tell people on here that they can sell notes to you for a 5% discount, yet I gave you darn near a perfect buyer & you wanted a 9% discount. This may be a trick that is done in the industry all the time to get people calling. I don’t know, but I hope not as it would not speak well for the note buying industry as a whole if they have to resort to this.

Maybe I missed something in my deal, but I’m having a real hard time trying to find it.

Thanks,
Vic

import · February 25, 2001, 5:27pm

I guess I just don’t get it… - Posted by Ron (MD)

Posted by Ron (MD) on February 25, 2001 at 18:27:18:

Michael,

I sincerely appreciate the time you took for the detailed and lengthy reply.

Your target buyer also seems difficult to find…someone with decent credit, 5% cash, and a willingness to pay 11.5-12.0% interest when FHA is 7.25%.

As for your target seller, let’s say that the typical rehab profit is $15k net of everything (including investor loan, excluding realtor commission). Your deal costs him roughly $3k discount to you (which I suspect is not a typical discount…which is more likely in the 10% range, but you would know that better than I), he defers another $3.5k of his profit on a seller second (which most investors consider gravy if it ever gets collected), meaning that nearly half his profit is deferred or lost to a discount. (Maybe other rehabbers are making considerably more than $15k on a typical $70k house, but I don’t think so.)

I can see an unusual case where a seller comes across this kind of buyer and is anxious to be rid of a property (anxious enough to defer or forgo nearly half of his profit). I have to confess that I’m not clear whether you think this is an alternative for a very limited number of situations, or if you think that it is a reasonable approach to use routinely, rather than “miserly squeezing every last nickel out of every last deal”. From my perspective, I’d rather look for my FHA qualified buyer and do roughly half the deals each year for about the same profit.

Thanks again for the detailed reply (and also for the advice to “take a deep breath and calm down”…it really helped).

Ron Guy

import · February 25, 2001, 10:36pm

Re: Let me jump in… - Posted by Houserookie

Posted by Houserookie on February 25, 2001 at 23:36:49:

When seller financing is adverised I get more buyers calling. With more buyers I can get a more honest
market value. Higher sale price.

ON some deals, I keep the seconds as cashflow.

import · February 26, 2001, 12:23pm

Opportunity costs… - Posted by Michael Morrongiello

Posted by Michael Morrongiello on February 26, 2001 at 13:23:02:

Vic:
While I can understand your insinuations, I must point out that as always “guidelines” & examples provided by lenders, mortgage brokers, note funders, etc. are just that, nothing more than sample “guidelines”. Until an actual deal is formally submitted and analyzed for its own merits one can only speculate as to how it will actually be formally priced.

As for your deal, Yes I vividly remember our deal,however its not the same deal…Its apples being compared to oranges. Your buyers were looking for a 90% LTV note intially, not 85% LTV, they wanted a lower 11% or lower interest rate on their financing, the example given was for 12%. They were “lukewarm” over having a balloon payment in their financing as well although as I later recall they became receptive to that issue. Although their credit scores were strong, but let’s not exaggerate they were not in the 700+ range. Additionally this deal was looked at many months ago when interest rates were at a higher level than they are now.

To top it off, the “coup de grace” was that you convienently failed to mention in your post was that you didn’t EVEN OWN the home you were trying to sell. This was a quick “Flip” transaction where you you had a contract to purchase at one price and then were attemtping to sell the home to these buyers at a much higher price. In other words, your deal had “wrinkles” in it, it was not quite the same “plain vanilla” transaction used as in the example.

It is a combination of these factors that I recall determined that we would in fact Still purchase your note, allowing you to make a substantial profit on the purchase and sale of the home, albeit not at the 95% payout indicated in the example. Had you had legal title ownership to the home, along with some “tweaking” of the repayment terms on the mortgage, a starting LTV% for the mortgage in line with 85% or thereabouts, and balloon issues resolved, a lesser discount on the sale of the paper more in line with the example provided clearly could have become a reality for you.

Do we purchase ALL notes at a 95% payout? Ofcourse we don’t, under ideal circumstances its possible and we have many times in the past.

Do we purchase “paper” with competitive pricing and “paper” often that others will not or can not ever close? YES we do that as well…

Kind Regards,
Michael Morrongiello

import · February 26, 2001, 11:34am

Re: Quicker Profits Vs Opportunity costs? (LONG) - Posted by Houserookie

Posted by Houserookie on February 26, 2001 at 12:34:54:

Vic,

There aren’t many notebuyers, IMHO, that could buy
notes that are not financeable through BCD lenders.

I use owner financing to control my deals. What you might want to do in the future is talk to one of the larger brokers or lenders in your area. Ask them if you can sell your home on a mortgage or deed of trust ( depending on your state ) and then
assign it to them at closing.

This will get your discount to about nothing.

If you need to cash out an existing note, then call
a full time notebuyer.

import · February 25, 2001, 7:18pm

Choices to make… - Posted by Michael Morrongiello

Posted by Michael Morrongiello on February 25, 2001 at 20:18:41:

Ron:
With the “razor” thin margins you have indicated you try to earn on your resales, you’d better hope you can sell quickly as holding costs of just a few months time WILL certainly eat into your $15K profit. I also suspect you have shared from time to time some of your buyers closing costs so that they could make their financing work. As you know this further eats into your “spread”.

I look at an unsold home as unsold “inventory”. When inventory remains unsold it costs you money. Like the giant retailer Walmart there are usually price reductions used to stimulate sales. However rather than price reductions, I advocate one can also choose to stimulate sales by offering Flexible financing. This can stimulate sales to all sorts of potential buyers.

The use of Seller financing is NOT a replacement for other financing available in the marketplace. I state that over and over again.

FHA, VA, and other conventional programs have wonderful advantages in the lower amount of cash they require down, and the lower interest rates they offer. But, there is a trade off in far more stringent underwriting for BOTH the property and the borrowers.

That being said, I have “flipped” numerous homes to buyers who want to get an FHA type loan, and have had to sweat it out while they go through being put under that underwriting “microscope” in an effort to be approved and close. While the program is great, All in all the borrowers qualifying criteria is FAR more stringent to meet in the areas of credit, income to debt ratios, and clear cut income documenation. Additonally the property requirements are also more cumbersome than other lenders.

Often deals get kicked out along the way (Been there, done that)and the home you thought was sold, lingers on the market unsold while frustration sets in and you try to find that elusive “qualified” buyer

While you wait for you FHA, VA qualified buyer to come along and then run through that underwriting “gauntlet” to obtain their government assisted financing…

I’ll advertise my home for sale with owner financing, and get the phone to ring. If the buyers can actually go with there own financing, and I also feel that they are strong candidates for this, then I’ll let them run with it - However there are Plenty of other buyers who are MORE than willing to put down their 5% + cash, pay a little higher interest rate, obtain less favorable terms to get into their home, with far less Red tape,and deal with me as their seller. And Guess what, I get to exert a lot more control over the whole financing and sales process from start to finish which ususally can be pushed to just a few weeks time.

If you want to deal with FHA & VA loan programs and the cumbersome requirements that go along with them, then do so, however sometimes in certain situations it makes sense to look at other financing alternatives to move my inventory fast rather than be myopic and hold out hope for a buyer who can go FHA / VA.

Fundamentally, that is where our difference of opinion lies. You will never go broke taking a profit. I’d rather earn a “Quick Nickel, than a slow dime” , sell my inventory and move on to the next opportunity. Seller financing allows me to do just that.

Warmly,
Michael Morrongiello

import · February 26, 2001, 7:32pm

Corrections!!! - Posted by Vic

Posted by Vic on February 26, 2001 at 20:32:59:

Michael,

Thanks for responding & I appreciate the straightforwardness & I’m also glad you remembered our deal.

However let me give you the facts EXACTLY as they were.

YOUR STATEMENT: “Although their credit scores were strong, but let’s not exaggerate they were not in the 700+ range. Additionally this deal was looked at many months ago when interest rates were at a higher level than they are now.”

REALITY: His credit scores were 768, 756 & 728. I just looked them up in my file so I know these were his credit scores. Granted, his wife’s were lower (I believe in the 565-625 range), but we could have left her off, just like the mtg co did. Also, the interest rates weren’t that much higher. I’ll also have to check, but if I remember right I think we had the note structured at 11.5%. I’ll have to check. Also, the deal wasn’t all that long ago - less than 10 mos. ago.

YOUR STATEMENT: “To top it off, the “coup de grace” was that you convienently failed to mention in your post was that you didn’t EVEN OWN the home you were trying to sell.”

REALITY: If you go back & read my post you will see as clear as day that I mentioned that it was a simultaneous close. So nothing was conveniently left off.

YOUR STATEMENT: “It is a combination of these factors that I recall determined that we would in fact Still purchase your note, allowing you to make a substantial profit on the purchase and sale of the home, albeit not at the 95% payout indicated in the example.”

REALITY: I had the house under contract for 142K. My sales price to the buyer was going to be 160K. The house was easily worth 175K. I sold it cheap so that I could sell it quick. I hardly call this a substantial profit, considering the risk, espcially when I discounted the note. Let’s see, had I sold that note at a 9% discount, I would have netted 147K. So let’s see that’s a whopping 5k in profit. Oh boy, I can hardly wait for the next one of those.

YOUR STATEMENT: “Your buyers were looking for a 90% LTV note intially, not 85% LTV, they wanted a lower 11% or lower interest rate on their financing, the example given was for 12%.”

REALITY: This statement is almost right. At first I was looking for a 90% LTV, but in our discussions I told you that if it mattered any, I’d be willing to take back a 5% second mtg. (At first I said I didn’t want to do it, but if you can remember I eventually said I would be willing to take back a 5% second.) You however told me that it wouldn’t matter all that much.

As for the balloon issue & the interest rate - that was never a problem for the buyers. They were totally comfortable with that idea. So I’m not sure where you got that from. You might have got me confused on that one with someone else.

Michael, the only reason I posted this is because it’s been aggravating me ever since it happened. At the time I thought 9% was extremely high. (I still do considering how strong they were credit wise.)

When I see you tell others that you can buy notes with only a 5% discount, when clearly their buyer’s credit scores aren’t in the mid 700’s, I think you can understand my skepticism.

The only real risk I saw in my deal was the fact that it was a simultaneous close (I don’t agree with it, but I understand your point)…but with the guy’s financial position & credit scores, I mean … to me the risk seemed virtually non-existent. Remeber this guy owned a guitter & siding company that was running 20+ trucks a day. That’s a decent size operation. Plus there was equity in the deal (from my lower than could-be sales price) to start with.

Now Michael, don’t get me wrong, I do not have anything against you personally. In fact, I have the utmost confidence that you can deliver exactly what you say you can. I was also very impressed with your knowledge of the note biz. The problem I have is when I see you tell people that you can buy certain notes for a 5% discount, when I gave you as close to perfect (IMO) as you can get & you wanted a 9% discount. Maybe it’s just the nature of the note buying beast - I don’t know.

But I do feel as though 9% on my deal was extraordinarily high. To be quite honest, ever since this happened I’ve had kind of a bad taste in my mouth for note buyers (again, I’m not talking about you personally).

I still keep the note selling thing in the back of my mind when I have a property to sell, but I keep it as a very last resort. Before, it was one of my first resorts. But based on my one experience I now look for buyers who can get a regular loan. That’s a shame too, cuz I’ve had a few deals since then where the owner financed note would have worked well, but not at a 9% discount. These buyer’s credit scores were lower so I can only imagine what the discount would have been had I gone that route.

Anyway, I do wish you the best in your note business & who knows, maybe one day in the future I’ll consider the owner financing route again & if so, I’d even be willing to give you another shot. Of course I’d have to get more than one quote though. LOL

Best of Luck,
Vic

P.S. I spoke to the buyer the other day. He’s doing well & has made every pmt. on time. He was even asking me about refinancing. He’s thrilled with the house & glad he’s got it. Me too - he’s a good guy!

import · February 26, 2001, 12:17pm

Re: Quicker Profits Vs Opportunity costs? (LONG) - Posted by Vic

Posted by Vic on February 26, 2001 at 13:17:41:

Houserookie,

This buyer was able to go through a mtg. broker quite easily. Any half way decent mtg. broker could have done this loan.

I tried to do it with a note because the banks required him to personally sign for about 15 or so trucks, even though they were owned by the corp. Since they were used for business use the lender didn’t even require that those notes be counted against his ratios. I didn’t know this at first though, so that’s why I thought the note route was the way to go.

In light of that, that makes a whopping 9% discount seem even that much more out of the ordinary.

Vic

import · February 26, 2001, 9:54pm

Not Exactly… - Posted by Michael Morrongiello

Posted by Michael Morrongiello on February 26, 2001 at 22:54:34:

Vic:
I always appreciate a spirited exchange and the ability to have discourse on a subject, however your selective recollection about your deal is simply not 100% accurate. Were we not able to agree to fund you 95% for the purchase of your note deal? Absolutely, we do agree on that. Do we fund note deals with this type of agressive payout that will meet our comfort level and criteria when set up correctly? Yes, to that as well. We’ve bought thousands of seller financed notes over the years and often they are not going to be funded at 95%. However, it is VERY much feasible with the right ingredients. A non “flip” type deal, owner occupancy, single family detached housing, good area, good condition, good credit payors, strong credit scores, decent employment, a $50K or larger note balance,all costs born by the seller, etc.

We will continue to competively fund seller financed note transactions just as we’ve done for the last 17+ years.

Now back to the facts and the main point that I believe you and other investors are missing, a “Flip” type deal is not “squeaky clean”, it has some challenges that have to be overcome.

You stated: “Granted, his wife’s were lower (I believe in the 565-625 range), …”

FACT: Yeah thats right, we have a self employed borrower who claimed he made decent money “stated income” but STILL not the kind of money that he stated (could not be documented at all) that most people in the finance business would associate with be able to afford payments on a $160K home. His wife who did in fact have much lower credit scores and some sloppyness in her credit past was not presented to us as being able to be excluded or removed from actually taking title. Clearly that would have been an option for us as well but it was never explored.

You stated: “If you go back & read my post you will see as clear as day that I mentioned that it was a simultaneous close. So nothing was conveniently left off…”

FACT: Not exactly - this is a half truth, YES it was disclosed that you were attempting to put together a “simultaneous closing” when it came to you SELLING the property and offering to finance it, and then wishing to “simultaneoulsy” sell the seller financed Note.

However as is often the case, until we get into the file additonally, it was NOT intitally presented to us that you did not even own the home you were attempting to sell. This came out as we got into the transaction and discussed it at length. I came to clearly understand that you were looking to BOTH acquire AND sell the home. This meant that you were looking to accomplish a “quick flip” type transaction.

Although the terminology “simultaneous closing” could be used here, its not the Full Picture truth, “quick flip” is more appropriate.

You were attempting to acquire a home for $142K and had a contractural agreement with your sellers to do so. You were then looking to “simultaneoulsy” sell it for thousands of dollars more than you were to buy it for without doing a lick of work to the property.

You did NOT have legal title to the home, you did not own it, you were not dong any fix up or clean up or renovation work to the property, and yet because you were offering to finance it to your self employed buyers you were able to obtain a significantly higher sale price. That was undestood by us AFTER it came out.(we would have even considered the deal at the retail $175K FMV sales price )

Most lenders will not even consider this type of transaction without you entering into Legal title and owning the property for a minimun of 6 months or longer. You would not pass their “seasoning of ownership” smell test. You see they are fearful that in essence you are using their money to both BUY and then SELL the property.

Yet you want them to advance you funds based upon the much higher sale price while you go on down the road, leaving them with a riskier loan, borrowers to deal with, and you with your eggs (read cash) in your basket to count.

In spite of all these issues we were STILL OK with you doing just that, and STILL were willing to make this deal work, but NOT at a 95% payout. It was NOT a home that you owned, had legal title to, and were now looking to sell, hence the additional risk factored into the deal.

If you are sour on the note business because of this incident- so be it, thats your choice. Its clearly time to move on from this discussion.

Seller financing and the creative use of Notes will continue to represent an alternative way for deals to still happen. This will become far more apparent if the economy continues to tank, interest rates rise or lender underwriting criteria become more stringent, so called “buyers market” returns, and homes are not moving at as brisk a pace as before.

As for my pet peeve: I can’t tell you how many times I’ve been lied too, mislead, misinformed, and lead astray by so called covert property sellers / investors who fail to mention this crucial point when discussing a deal with our office. That they are selling a home they don’t even own, and wish to have us provide funding to them at the MAXIMUM advance that we or someone else has illustrated in a previous example. Guess what as Mike Meeker once told me “that dog won’t hunt”

Warmest regards,
Michael Morrongiello

import · February 26, 2001, 12:38pm

Re: Quicker Profits Vs Opportunity costs? (LONG) - Posted by Houserookie

Posted by Houserookie on February 26, 2001 at 13:38:48:

Vic,

Sometimes I come across a bit contraversial here, but
I don’t think there’s any need to go through a
note broker.

A few weeks ago I had to justify to someone here that
there is way to discount notes at less than 1%.

However, conventional wisdom forced him to call names and personal insults.

It’s hard enough trying to find 9% to spare in a RE deal. If you could profit that much per deal, and a few per month, you will become quite wealthy.

Most of my investors now buy notes from me at about 1% or less.