Posted by KC Questions on April 19, 2002 at 16:36:11:
If you are getting 65% from the HML, that would leave 35% that the seller will be carrying. You will have to determine both your and the seller’s needs. If the seller needs to be paid off in 5 years, a balloon payment would solve that, but as a buyer I would want the longest term possible. I try to get terms of 20-30 years on my notes to keep my payments low. If the seller insists on a particular interest rate, and the numbers still worked out, I wouldn’t pass up a great deal for that reason alone. I figure that you could always refinance later, which you would have to do to pay off the HML anyway. If the seller insists on you naming a rate, I would grab a newspaper and show him/her what “normal” lenders charge for interest.
I have a hard money lender that will give me a 65% loan. I would like to give the seller a promissory note for the balance so that I can get in with 0 money. Is this possible? And if so, what is the standard amount of interest to offer the seller caryying the note?
Please help! Thanks
Offer - $4,000 down + $480 a month for 200 months.
Seller questions lack of interest because he or she wants more monthly income.
New offer - $4,000 down + $960 a month for 100 months.
If he doesn’t like that one apply his expected interest rate to the number of payments and add to the total.
“I want 10% interest and not one penny less.”
“O.K. Mr. Seller, ten percent of $96,000 is $9,600. Added to the $96K, that’s a total of $105,600 I have to pay you. We’ve seen that the rent for your property will net $480 after expenses. If I give you all the cash flow that this house will produce, you’ll be completely paid off in 220 months. I’m not sure if my associates will want to buy a house that isn’t profitable, but if I can them to go along with our deal, this is good for you, right”?
Let the seller give you the expense numbers and then use them to make your deal. Remember that many people have trouble balancing a check book, and they?re not bankers; they?re trying to sell a house.
Yes, it is possible. I usally see between 9% and 10% seller carryback 2nds. Be flexible with the dollars needed for carryback, and the percentage rate. As long as the deal is profitable when you work out the numbers, you can be flexible so everyone wins.
As a buyer, you try to negotiate the best deal you can. Ideally you would like a 0% interest note, but a seller could have consequences by having an IRS imputed interest. I am not sure of the full ramifications to the seller and how the IRS knows when to do this. So you could set an interest rate as low as the applicable federal rate so everyone is happy. Right now it is about 2.88% for short term up to about 5.62% for long term.
As the seller, you want the highest rate you can get your buyer to agree to. The smaller the note, the higher the interest to shoot for.
But always negotiate to make the deal happen. Don’t sweat a 8% note for $1k when you want 12% for the $1k. Be flexible.
That’s interesting. Ok, let’s say I do that. I am sure that the seller wants to make somthing for carrying? Would I just give him extra payments for a longer period? ALso, what is the standard amount of years to carry a note?