How about if one already owns the property? One situation in particular is this:
owner bought fixer property, paid 60,000
spent another 60,000 in repairs (gutted interior)
209,000 property value
120,000 1st TD
Owner now wants to pull cash out but has been told by several 2nd TD sources that they require him to own it for 6 months. Right now he’s only owned it 3-1/2 . . . almost 4 months. He wants $$$ now to do another deal and is flexible on how he gets it. One 2nd TD lender told him they’d loan $53,000 on it if only he’d owned it for 6 months.
This is a 4 plex owner occupied property. The owner has A credit.
JP states, “We finance most of the auction houses we purchase by selling a private mortgage on the property.” I am unclear as to how the process is started if buying no money down. My questions are:
Do they put up the money at auction to initially control the property?
Or is there some other way that allows the property to flow directly into escrow without putting up any money?
It has also crossed my mind that they may be properties that didn’t sell at auction. If so, does that mean HUD is more flexible with the initial money requirements?
Excrow / Closing - “All in One” - Posted by John Behle
Posted by John Behle on March 31, 1999 at 13:25:00:
How Terry and J.P. do their deals I don’t have details on.
As far as the approach and how we have done it in the past, it can all happen at once. The property can be funded from the sale of the note at closing. Now there are issues about that right now that we won’t get into today, but it works well.
Now with auctions, usually they have requirements of from $1-10,000 deposit and as much as 7-30 days to come up with the balance. It totally depends on the state and lending institution. Some want all cash that day. In that case (and really the others too) you need to have the investors lined up before hand.
It works well with a substitution of collateral where you put another property up as collateral to buy the auction property. Example. Investor loans me $50k on property “A” to buy property “B” at auction.
You can also have your note buyer prepared to do the deal in a one day period - if you get the property. You can also do deals like this with credit or short term investors. Example. “Hard money” investor loans me quick cash secured by the auction property and then I create the note and sell it later to pay off the investor. It’s easiest just to do it with one investor, but you have to educate and “prep” them.
Hi John,
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?
Thanks,
Michael Murray