Owner financing...how can I work the down payment? Help, no $$$. - Posted by Teedi

Posted by Craig on May 24, 2000 at 19:09:00:

I heard American Note does not do deals like this anymore. That’s not really relevant though.

Whatever you do, make sure that if you’re gonna deal with a broker he knows what he’s doing. Most are just bird doggies, which is fine except they’re shooting for large fees for little work, and have minimal knowledge.

If you’re gonna work with a broker it’s very good if that broker is the only party between you and the institutional funding source. If your broker is sending it to American Note, I’m not exactly sure if that would be the case. I kind of suspect there would be 2 steps between you and institutional funds and that your broker is really a bird doggie for the real broker.

Owner financing…how can I work the down payment? Help, no $$$. - Posted by Teedi

Posted by Teedi on May 23, 2000 at 19:33:19:

Its a four bedroom 3 bath 3car garage home. Owner wants
to carry the financin with NO qualifying! 1/4 acre lot as well. No price mentioned, but wants a $12,500 down payment.
How can I structure wording my conversation so as to see if
he will take that 12,500 in the form of a note How long is
a reasonable time period? And can I assume the owner is knowlegable in flexable and creative options for home buying. Id really like to go for it but am afraid I’ll
botch the deal. Id like this to be my primary home and use
my current home as my first investment property with a
positive cash flow of about $117. per month. Help!

Re: Owner financing…how can I work the down payment? Help, no $$$. - Posted by Craig

Posted by Craig on May 24, 2000 at 14:24:45:

I think Shawn is on the right track, but I’m not sure his suggestion is all too feasible.

First understand that more than likely that seller wants $12,500 cold hard cash in his pocket no matter how he gets it. It might not hurt to ask him to carry a note for the down payment, probably will not. 2nd realize that a 1st lien note or a 2nd lien note for $13,600 is going to take a steeper discount than normal merely because it is small. Unless you’re dealing with a private investor who is not looking for a great return and is praying to God that you will default. So you will have to dramatically increase the size of the first note if you want it sell for $12,500. In fact you may have to make that 1st any where from $15,000 to $20,000 in order to sell it for $12,500 and it’s going to wind up in institutional portfolios. Institutional lenders don’t like making small loans, and when they do, they charge a lot. Institutional note buyers are pretty much the same about buying small notes.

Next you really don’t have to split the notes up, consider creating one and selling enough of the payments to get the seller the $12,500. If you broker the sale of that note yourself you may even be able to put some cash in your pocket. Consider having the seller, sell enough payments to get you $15,000 from the note buyer and offer the seller $12,500. Of course your gonna need someone to help you through this if you have no previous experience. I suggest talking to Michael Morrongiello. His posts are all over this board and I’m surprised he’s not replied to this one.

First & Second? - Posted by Sean

Posted by Sean on May 23, 2000 at 20:35:29:

A lot of whether this is possible or not depends on the equity in the property. You should make a point of asking and finding out how much equity the person has in the home. For now let’s say, for the sake of argument, that the person owns the property free and clear.

You can agree to buy the home with two trust deeds – a first in the amount of $13,600 and a second for the balance. The first can then be sold by the seller for an estimated $12,500 provided that it bears a good interest rate and a reasonable payment schedule.

This will give the seller the $12,500 which I’m guessing is what he needs to pay his closing costs.

Re: Owner financing…how can I work the down payment? Help, no $$$. - Posted by David Alexander

Posted by David Alexander on May 24, 2000 at 22:08:34:

He’s in Vegas at a Paper convention, I believe!

David Alexander

We may be missing… - Posted by Sean

Posted by Sean on May 24, 2000 at 18:50:39:

…the forest for the trees. We’re proceeding on the assumption that the Seller needs the money to pay for his Realtor, closing costs, etc. That may not be the case.

It’s entirely possible that the Seller has no real need or particular use for the cash and that the Seller is asking for $12,500 down for his own peace of mind. He may feel that a person who puts $12,500 down is much less likely to give the property up in foreclosure than a person who puts nothing down.

Accordingly he may not be satisfied with the suggestion that a note be created and sold for cash. That gives him less security – not more.

It’s entirely possible that the Seller will carry 100% owner financing if the Buyer pledges his other property as collateral for a blanket mortgage. That could satisfy his need for security.

In my opinion, the first thing that needs to be done is to talk with the Seller and establish what his wants, needs and concerns are. From there we can create a solution that meets his needs and makes financial sense to us.

Re: First & Second? - Posted by Teedi

Posted by Teedi on May 24, 2000 at 01:02:35:

Thanks Sean. Im curious since Im new at this game. What interest does the person who buys the 1st lien
now have? Equity share for a slightly discounted price? Im not sure I understand all this business with buying and selling notes and liens. Im sure I will though before it is all said and done. Do I as the one
buying now have two different sources to pay? Since the seller is even offering financing, do you suppose he would understand how to go about selling the 1st lien? Or should I gain some more knowlege and do the explaining?

Id appreciate if you could shed some light on this.
Thanks again.

Re: We may be missing… - Posted by Craig

Posted by Craig on May 24, 2000 at 23:22:10:

I didn’t assume that at all. It’s good underwriting from anyones standpoint to require cash down if they’re going to finance. If it’s no qualifying then 10% is reasonable.

The seller may not even need the cash. He may just insist upon it as a matter of principle or he may be a lot smarter than some others. Pledging some other property as collateral is a good idea. But it’s not spendable, and the seller might just want some spendable cash.

It’s a matter ask and receive and give and take here. The note idea is a good way to get him that spendable cash if that’s what he desires. The additional collateral is a good idea if he’s worried about decreasing the odds that the buyer will default. Find out what that seller really wants and what he’s worried about and then start figuring out how to give it to him.

Notes - Posted by Sean

Posted by Sean on May 24, 2000 at 18:05:22:

There’s nothing really complicated about it. The first thing you need to understand is what a note is.

Suppose that you go to your brother (let’s say his name is Bob) and ask him to loan you $500.00 and you agree to pay him back $50 a month for 10 months. He agrees, but he wants you to put it in writing. So you write down on a piece of paper, “In consideration of $500.00 I agree to pay to the order of Bob $50 a month for 10 months starting on June 1, 2000.” This piece of paper is called a note.

Now let’s suppose that Bob runs into some financial problems. Let’s say the IRS comes around and tells Bob that he owes them $400 and he better pay up. So Bob approaches you and asks you to pay a little faster. Unfortunately you don’t have the money so you can’t.

So Bob comes to me and offers me the note. I agree to buy it for $400.00 so I give Bob $400 and he writes on the back of the note “Pay to the order of Sean.”

I then bring the note to your door and knock on it and show you the note. You see that it’s the original note and that your brother Bob wrote on it to pay to me. So you now know to send all future payments to me.

That’s basically what’s going to happen in your situation. The Seller of the property is going to get a note from you agreeing to pay a certain amount of money, plus interest with regular payments, etc.

He will then turn it over to a note broker. That note broker will check up on you – pull a credit report on you, make sure you work somewhere, etc. He’ll also check up on the property – get an appraisal, go look at the property, talk to the neighbors, etc.

When all of this is done he’ll have a package of paperwork that he’ll submit to an institutional investor like American Note. They’ll review the documentation and decide how much the note is worth.

Once they buy it off of the seller you’ll be sending your payments on the first note to American Note and the payments on the second note to the Seller.