Posted by JoeKaiser on December 20, 2000 at 02:14:45:
Mike, I applaud your initiative, but you’re in over your head. Stop now before it’s too late.
Study, learn, and then (and only then) go make things happen. You’ll need to know not only what you’re doing, but how and why as well.
You can create a note as you suggest, but there’s a whole bunch more you need to understand before you can actually make this work in a real deal.
Joe
Note For Sale. - Posted by Mike M
Posted by Mike M on December 19, 2000 at 18:16:17:
I have the Carlton Sheet course and in the legal forms portfolio I created a note. I have done this in order to aquire some quick cash to start investing in junkers.
The house I am talking about is worth $44000.00 and the seller will take $29,950.00 for it. Seller wants $10,000.00 down and will carry the rest for 6 months. (I am pumped over this!) I can’t believe I can do this!!!
Now, what I’ve done is draw up this promissory note for $12,000.00 that way I can give the seller his cash and still have $2,000.00 (spendable cash) after the smoke clears.
The only problem I have now is knowing who’ll buy this promissory note. Can I just take it into a bank for the cash? What interest rate will be assigned to it? Will the bank check my credit and if I get turned down can I just keep going from bank to bank? How long before I get the cash for the note? Seller is in a big hurry to move out of state and said the faster the better otherwise the price is going up. Says he can’t afford to “Dilly Dally” with waiting.
PLEASE HELP!!!
Mike M
Re: Note For Sale. - Posted by SCook85
Posted by SCook85 on December 20, 2000 at 08:30:10:
Mike,
Your enthusiasm is good, however you are letting it get the best of you. Selling notes is much more then creating it and expecting anyone to buy it. There are many factors that give a note value, and there are factors that make a note worthless.
At last years convention Terry Vaughan had the whole room go through an exercise of creating a note, securitizing the note, etc… Everyone in the room had to take a shoe off to securitize the note that they created… that is another story but I will try to get to the point.
It appears to me that you want to create a “promissory note” and not a mortgage. In this case you want the security to be your signature. You are attaching no collataral to the note. In this case the seller is going to want to know how good your signature is, and their will be 2 very important things to them: Your ability, and your Intent to pay.
Your ability to pay the loan is going to be determined off of your income. Do you make enough money to afford the payments in addition to all of your other living expenses. My guess is that you don’t since you are unemployed with no income.
Your intent will be determined by your credit. You told us that you have bad credit. So you don’t have a track record of having good intentions to pay. I’m assuming that you have defaulted with others, so it is highly likely that you would default with this note.
So with this note in particular I would say you are wasting your time. There is no value to it. You can’t give anyone any assurance that they will get paid back. Anyone who buys notes looks at the whole picture. They don’t just buy a note because it is a note.
In your particular deal, you should ask your seller to carry the whole note as a first mortgage. They sound pretty motivated. Moving from the state and not having a buyer in place only increases there motivation. If I were you I would keep dilly dallying around until the seller gives and finances the whole thing. You will learn over time that the $10k is something the seller would like to have, but his alternative is nothing and keep the house. I think this would be a better approach to this deal.
Happy Investing!
Steve
Re: Note For Sale. - Posted by phil fernandez
Posted by phil fernandez on December 20, 2000 at 07:53:23:
Mike,
Is the seller willing to take his $19,950 mortgage in a second position. If not then the $10,000 note that you will be creating will be behind a 1st of $19,950. This second will not be very salable for cash because one its in a second position and two, you have no money into the deal and with no job and bad credit no one will buy this particular note.
Also a mortgage with a 6 month balloon has a way too short fuse. Where is the payoff money of $19,950 going to come from when the balloon comes due.
Your note deal - Posted by Michael Morrongiello
Posted by Michael Morrongiello on December 19, 2000 at 21:59:10:
Mike:
If the seller will agree to hold a mortgage and note secured by his property that is created as the result of the sale of his property to you, then this is commonly referred to as a “purchase money mortgage”. This type of paper they will be tremendous note investor appetite for (we would love to get more details).
What you and your seller can expect to receive in cash will depend on how the following variable shake out when looking at the transaction:
Depending on the input to these issues will to a great degree determine how best to make this deal happen.
To your success,
Michael Morrongiello
Re: Note For Sale. - Posted by Mark-NC
Posted by Mark-NC on December 19, 2000 at 21:53:18:
Mike,
Before you go to far with this deal you need to back up a minute.
Is this note going to be in a first or second position?
In most cases a seller would want this note in a second position.
As the deal sits now you will have to have 2 notes. The short term 6 month note that will amount to 19,950.
and the other note of 12,000.
Now bare in mind that if you raise your 10,000. dollar note to 12,000. you will have to raise the sales price that extra 2000. to make the numbers work.
Another thing you have to consider is the seller owns these notes and he is the one that will be selling it.
And as far as getting the 2000 back from the note. Thats not going to happen, because note buyers, buy at a discount. And more than likley you will not be able to take this note to the bank unless you have a relationship with them. Even if you do I doubt if they will buy a second note with no payment history.
And If this Note is in a second position you will be luckey to get 50 cents on the dollar for it. You need to contact a Note buyer to see exactly what you could do. The pricing of it is going to depend on many variables such as credit, rate terms ect. ( try the note forum).
Now I don’t want to burst your bubble. I applaud your enthusiasm. But You need to rethink this thing before you get to deep into it.
What I would suggest is to get the seller more cash by making the 1st note for more and selling it giving him more cash up front and talking him into holding the second for the six months untill you do what ever it is you want to do to the property.
If you write it at a low enough LTV say 70% you probably wont have any trouble getting cash for it from the right note buyer. If the property is actually worth more like you say, bump up the price to cover the discount if you need to, to make the deal work.
Example; Say he sells it to you for 33,000.with a 70% 1st note to be sold at close.
70% LTV = 23,100.
I would guess that if you found the right note buyer and depending on all the variables you could probably get around 20,000. plus or minus for the note.
That being said it may be more atractive to the buyer putting more cash in his pocket.
This is just one way. I am sure others on the board will come up with other suggestions.
Good luck!
Mark
What! You misunderstand me here - Posted by Mike M
Posted by Mike M on December 19, 2000 at 22:34:55:
I don’t have any money to put down! My credit is bad. I don’t know my credit scores. I am unemployed and thats why I’m an investor now. What do you mean when will the note be sold? I just want to make payments on it. You see, the seller has this house and he needs some cash and will carry the rest. He still owes on the house! wants to sell to me for a little more than he owes. He wants $10000.00 cash down and the only way I can get it is by drawing up one of those notes in my legal forms portfolio and selling it to someone that wants to buy it. The seller needs cash in hand now! So how do I sell this note and what is the proper way to fill one out? Do I need Notary on it too?
Mike M
The once-in-a-lifetime deal - Posted by Brent_IL
Posted by Brent_IL on December 22, 2000 at 03:07:00:
The once-in-a-lifetime deal comes along every ten days. It takes time for even great deals to overcome serious personal financial problems. At this point in time, you don?t have a great deal. It is very probable that this property with the terms you have outlined will increase the cash flow problems you?ve been experiencing of late.
If you have no money now, what are you going to do when everyone involved is suing you over a deal gone bad? If you can?t afford a lawyer to advise you going in to the deal, how will you pay one to defend you in a civil action?
This deal will not provide the cash you need.
Don?t despair. Stop and regroup.
Right now, you don?t know enough to know what it is that you don?t know. One can make a ton of money buying and selling real estate creatively, but there is always a trade-off. If you have no money, credit, or collateral, the thing that you can bring to the table is knowledge.
Since you?re unemployed, you have some time. Go to the last post on this site and work your way up, reading every thread. It will take less than a day. Don?t worry if you have questions. They may be answered further up in the list. What you will gain is an overview of the whole process.
Now, review your offer in light of your increased knowledge. If you feel the seller is truly motivated, find an experienced partner (real estate agent?) to work with you and share the profits. Half of something is much better than the nothing you will have if you try to wing it alone.
Knowlege is Power Yet can be Dangerous as well - Posted by Michael Morrongiello
Posted by Michael Morrongiello on December 20, 2000 at 11:14:26:
Mike:
There are some good suggestios here. However BEFORE your jump in and become an “investor” you need to do some housekeeping.
“I don’t have any money to put down! My credit is bad. I don’t know my credit scores. I am unemployed and thats why I’m an investor now…”
These are issues you need to be able to clearly address when speaking to other investors or potential money partners, facilitators, or dealmakers.
Its great to learn new tricks, however one must be in a position to use their new found knowlegde in an apporpriate manner. This board is full of helpful people to sort out the misunderstandings, misinformation, mis-truths, etc. that are sometimes espoused by others who are so called “in the know”.
You have found what appears to be a motivated seller here and on the surface it does appear that there is a potential deal to be made. However remember, you make your “profit” when you make the BUY, you must buy with a price and/or combination of terms that allow you to PROFIT later on when it comes time to sell.
Figure out what this sellers hot buttons are and craft together an offer that works for you. As was suggested, what the seller wants and what the Seller really NEEDS are two very different concepts.
Let us know how this progresses.
To your success,
Michael Morrongiello