Continuing on that track… - Posted by Michael Murray
Posted by Michael Murray on April 01, 1999 at 24:31:18:
I have been intrigued by the idea of creating a mortgage on a property not yet owned, to fund the purchase of that property. I think I have a pretty good grip on how that can work and am thinking through the process before trying it on a piece of property my wife and I want to buy for our future residence. Before I blunder into some catastrophe because I missed something important, will you kindly review how I plan to structure the deal and give a quick critique?
Listed price $495,000 On market 8 months, with Realtor
Owned free and clear, no liens, 3,500 sf house, 41 acres
Several low-ball offers by others rejected
Seller wants full price which was established by Realtor
Seller unmotivated, in no hurry to sell
No appraisal has been done
The Deal: Offer slightly more than listed price - $500,000
-Ask seller to take back 2nd for $250,000 at zero interest and 5 yr. balloon for $250,000
-Create 1st mortgage for $375,000 - 75% LTV
at 12% 30 yrs
-Sell note to buyer for $375,000
-Pay $250,000 to seller at closing
-Cash to me $125,000 less closing costs
-Pay one year in advance from proceeds to note
buyer ($46,288) to self-season note and increase buyer confidence
-Begin depositing $4,167 per mo. into an escrow for retirement of balloon in 5 yrs.
Will a note buyer be interested at 75% LTV? and 12% interest?
How much discount should I ask for to prepay the first year in advance?
Assuming I can handle the payments, this seems too easy. Where am I messing up?