Jay:
If you write up the $24,000.00 2nd lien note to have no monthly payments and to simply accrue 7% interest annually, then in 5 years the single lump sum payment should be approx. $33,661.24 that you would owe.
The goal would be see that when that 1st lien is paid off at the end of 5 years or sooner, the $24,000.00 2nd lien slides into a 1st lien position.
Now that 2nd lien could be converted into cash “if” the seller wishes to explore its sale.
Guys, I have a seller financed note that I’m trying to write up for a seller to where it would be most advantageous to me. I’m buying a property with $1k down and payments of $350 per month which is the same amount the current tenant is paying. He wants the tenant to remain in the property for 1yr so I left the payments at $350. We negotiated a price of $45.5k payable at 7% interest in 5 yrs then balloon. The house rents for $650/mo and is worth $70k.
I initially thought that I would simply create 5 1yr notes then pay the 1st note off when the 1st payment is due. That would leave me with beginning payments on the 2nd note 1 yr before it would begin accruing interest, thereby creating an interest free transaction. But the payments would be off by about $400. I tried re-negotiating with the seller but he was happy with the deal as it stands and I had a signature already so didn’t want to push it. Any ideas here?
Jay:
Is it possible for your seller to carry back (2) two mortgages and (2) two notes, a 1st lien mortgage note that would be tied to the existing payments coming in from the tennant and then a 2nd lien mortgage and note which would NOT have payments due until the other note is retired. At that time the 2nd lien note would slide into a 1st lien position and could possible even be sold by the seller to get the cash payoff amount he wants in 5 years…
Okay, so I create 2 notes, the first based on a 5 yr schedule at $350/mo then a 2nd note with no payments due in 5 yrs? So the face amount on the first note would be $21k and a face amount on the second note would be $24k? How should I write up the interest on the $24k? To accrue at 7% annually?