IF the Seller won't finance it how do you get the loan? - Posted by Matthew Jurgens

Posted by Tim (Atlanta) on April 20, 1999 at 12:32:49:

I agree that 10% buyers are hard to find…

In your scenario, would you be able to sell the first lien note for face value of 80% of appraised? Seems to me that the note buyer would want a discount, which would eat into whatever downpayment the buyer was willing to fork over.

I like the idea of taking back the 2nd, but doesn’t that leave you open to the possibility of the buyer not paying on the 2nd? Wouldn’t you have to satisfy the first before foreclosing on the 2nd? I have a friend who tried that and got taken to the cleaners. He was selling properties and taking back 2nds. After a few years, when he had the balloon come due, noone paid off. Then he had to refinance the first in order to foreclose on the second. Did he do something wrong here ?

IF the Seller won’t finance it how do you get the loan? - Posted by Matthew Jurgens

Posted by Matthew Jurgens on April 20, 1999 at 03:23:38:

Say I find a good house at a good price, say 70% of market. Say the seller wants all his money and wants out. Say I have a buyer for 100% of market value on terms like 10% deposit and the rest as a first mortgage. How do I get the full 70% of the value in cash to pay the seller?

I sort-of agree with Tim… - Posted by Sean

Posted by Sean on April 20, 1999 at 11:54:36:

You take your buyer’s 10% and turn it over to the seller, and get a 60% LTV loan at 15% interest. Then you finance your buyer at 90% LTV and 10% interest (or higher). Anything below 10% interest from your Buyer is unacceptable.

Set your buyer to pay on it like a 30-year loan with a balloon payment on it coming due before the hard money loan’s balloon payment (or 48 months, whichever is first). You will pretty much have to pay all the money you receive from the buyer to the hard money lender, so you’ll have no cash flow, but when the balloon comes due you’ll get a bit of money. Your buyer will also have 3 years to get his credit cleaned up to be able to qualify for a loan.

Example: 100,000 house.
Seller receives $10,000 from your buyer and $60,000 from hard-money lender.

You borrow $60,000 at 15% interest-only with a balloon and loan $90,000 at 10%. You receive payments of $789.81 a month, which you pay on the underlying loan. At the end of 48 months you should get a balloon payment of $30,246.48.

Re: IF the Seller won’t finance it how do you get the loan? - Posted by Tim (Atlanta)

Posted by Tim (Atlanta) on April 20, 1999 at 06:24:28:

If I understand you correctly, you are assuming that your buyer cannot or will not qualify for a conventional mortgage. Right?

In that case, you will need to get a hard money lender to lend you the 70% and then write up a land contract or a contract for deed to your buyer for the 90%. You take the buyer’s 10% and keep it for the next deal or you may need it to satisfy closing costs on the hard money loan. Just make sure that the interest you are charging the buyer is a good 2 points higher than the rate you are paying the hard money lender.

You make money using this method in two ways :

  1. You keep the down payment (10%) upfront money.
  2. You make a monthly cash flow which represents the difference in what you pay for the hard money loan and the payment the buyer makes to you for the land contract.

If you make the interest rate high enough (I would say 10-12%), the buyer will be motivated to cash you out as soon as possible. I prefer to get the buyers qualified for a conventional mortgage if at all possible. That way I get my money out faster and can use it to move on to the next deal.

Just my .02

Re: IF the Seller won’t finance it how do you get the loan? - Posted by Bud Branstetter

Posted by Bud Branstetter on April 20, 1999 at 11:02:44:


I feel there is a fallacy of your suggestion on using a hard money lender in that they will only want to go 60-65% of value. Second is that they are likely to charge 15% or more. It is difficult to create cash flow with that interest rate. Another fallacy can be that the 10% down buyers are all over the place. Many are out there but not as common as we like. In most places a 70% of value without fix up is also very difficult.

If I found the 70% of value opportunity my choice would be to advertise it as owner financing avaiable. I would then sell the first lien note for close to 80% of appraised value and take a 2nd for the difference between their down and the 1st.

Re: IF the Seller won’t finance it how do you get the loan? - Posted by Stacy (AZ)

Posted by Stacy (AZ) on April 20, 1999 at 09:56:47:

Actually, the third way you make money here is when the buyer qualifies for a new loan and pays you for your 20% equity in the deal. That’s why it probably pays to have a balloon in your land contract with the buyer, and to work with them on cleaning-up their credit. Also, best to do this using a land trust for “due on sale” concerns.