Looking for feedback on my plan.... - Posted by Neil (MD)

Posted by Neil on March 23, 2000 at 23:01:25:


Looking for feedback on my plan… - Posted by Neil (MD)

Posted by Neil (MD) on March 21, 2000 at 01:11:59:

After months of reasearch,many books read and a lot of time reading this newsgroup, I’ve begun to formulate my foray into real estate. I’ve decided on this plan of action.

  1. Buy a house through seller financing (hopefully avoiding due on sale clauses)
  2. Sell the house through seller financing
  3. Make money on the spread

Here is an example of how I would structure this:

Let’s say I buy a house at FMV of $100,000. I get the seller to finance the house over 30 years at 9% (maybe I put a couple percent down, maybe I don’t) I then resell the house at 100,000. (I’m using a worst case scenario here, I would hope to buy lower and sell higher). I finance the seller at a 13% interest rate after he puts a couple percent down. I make money on the spread, in this case(assuming no money down on both ends), it would be $302 per month (i’ve not included closing costs).

My questions are?

  1. Is this a suitable structure for my business model?
  2. If we use this example, is the payoff worth the risk of having to foreclose?
  3. Am I making assumptions I don’t know I’m making?
    4 When I sell, should the deal be structured as a 1st and 2nd mortgage so that I might have some resale ability on the 1st mortgage?
  4. Are there plenty of buyers who have not been able to get credit that would be interested in a deal like this?
  5. Should I charge a slightly lower interest rate, but increase the selling price, so that if it gets paid off early, i’ll at least make a profit?

Any other input would be great!

thanks for the help in advance

Neil (MD)

Re: Looking for feedback on my plan… - Posted by John Behle

Posted by John Behle on March 23, 2000 at 18:47:49:

The model is ok, but if you have to foreclose, you run the risk of a period of no payments to you with acruing payments and interest on the underlying loan.

Then, if you foreclose, you also run the risk of damage or deferred maintenance to the property. Is it worth $300 per month? Maybe - if you can get the right buyer and structure it to get the property back quickly.

I don’t know where you are, so I can’t comment on foreclosure laws. They vary state to state. In my area, I could do a deal like this and sell on a contract and be fairly sure of getting the property back quickly.

But, in yours you would want to explore buying on a contract and then using a lease option or a land trust or pactrust.

Re: Looking for feedback on my plan… - Posted by William, Columbus, OH

Posted by William, Columbus, OH on March 21, 2000 at 10:41:27:

Neil: This question needs be placed on the Main Newsgroup instead of Cash Flow Forum, okay?

  1. No 2. No 3. ? 4. No…not enough profit
  2. Yes 6. Buy at $75,000…or lease option and make your money with buyer’s d/pmt & monthly spread.