# Please help structure this "Lonnie" type deal - Posted by Ben (NJ)

Posted by Ben on March 01, 2000 at 22:15:04:

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Please help structure this “Lonnie” type deal - Posted by Ben (NJ)

Posted by Ben (NJ) on February 23, 2000 at 13:00:41:

I am imminently taking title to a property through tax lien foreclosure. I am getting the property for \$20,000. It is worth \$60,000. Rather than just selling it to the first cash buyer that comes along, I am considering a Lonnie type deal where I market it to a marginal buyer, carry back a mortgage and secure a higher price, (\$65,000?)as well as charge at least 12% interest on the loan plus two points. I’ll go out 5 years with a balloon payment. Is this realistic first of all, or am I pushing the limits of “mooch killing”. What would the monthly payments be? What would my yield be? (Please don’t tell me “good nuff”). Thanks alot.

Your yield - Posted by John Behle

Posted by John Behle on March 01, 2000 at 18:37:45:

First step is to determine the balance then payment. If you go with the 65k price and 10% down then you would finance \$58,500.

There are a couple ways people go. You could do interest only and a balloon, but it is more common to use a payment based on a 30 year amortization then balloon in 5 years. That payment would be \$601.74.

Next step is the balloon amount. When we put 60 into N and calculate for FV we get the answer of \$57,132.98. Now enter the investment amount into the PV register.

You put out 20k and received back 6500. That leaves an investment of \$13,500. Enter that into PV and calculate for yield (IRR) and you receive an answer back of 63.30. If you receive a smaller figure just over 5% that is the periodic monthly rate. Multiply by 12 for the annual rate.

I left out the points and recommend against it. Seller financing is fine and acceptable in most locations. Points enters into the realm of mortgage financing and they are un-needed. It’s not worth the potential problems and the negotiation challenges it can cause.

Forgot to add one thing to post above!l - Posted by Ben

Posted by Ben on February 23, 2000 at 13:34:20:

I would want a 10% downpayment from the borrower.