Posted by Susan (N.Ca.) on January 29, 2000 at 23:18:51:
Thanks for the info. I really appreciate the time you and other investors take to help each other on this board. I suppose I’m just having a hard time accepting that someone (a seller) would be willing to do something that appears to be so risky on their part. I myself would want my name/reputation totally disassociated with the property after a sale.
How would you handle such a transaction? I’ve only dealt with conventional purchases where the transaction is processed through a title company with fees averaging 3%. Since there would be no loan payoff/new loan would I still close with the title company?
As I previously stated, I’ve got the Sheets CD’s, and they do a great job introducing these concepts, but do you know of a better, or more detailed course pinpointed at these types of transactions. ie. How to sell a loan takeover to a seller as well as how to follow through with the sale. I believe, as you stated, my lack of a “real job” has now put me in a position of relearning all that I thought I knew about real estate.
Thanks again,
Susan
Posted by Susan (N.Ca) on January 29, 2000 at 17:09:00:
Okay, maybe it’s because I’m a finance person (I’ve been studying/practicing accounting since I was 13), but I have a hard time subscribing to some of the methods and practices taught. I studied the Carleton Sheets CD’s years ago and although they are VERY motivating, a good amount of the material seems not only unrealistic, but unreasonable. I love purchasing real estate. I see it as my retirement account. I currently own my home, and have two rentals. Do I consider myself an “investor”? No, my properties don’t bring in a lot of money monthly, but I’m in this for the long run. The way real estate appreciates in CA my ROI is more than acceptable. I suppose my questions to all of you gurus are as follows:
Do sellers/noteholders honestly accept interest only notes computed using the simple interest method?
These so called “subject to” or “wrap” mortgages: Does the seller/noteholder honestly allow the note to remain in their name just to be rid of the burdon of payment? Don’t they realize that your payment habits will affect their credit? And doesn’t this hinder them from obtaining future loans because of the outstanding obligation?
And what about the bank? When the title is transferred aren’t they notified from their CLTA policy? And isn’t this CLTA policy only good for the prior owner? Since interest rates are looking to be on the move, wouldn’t it be in their best interest to call a note rather than not?
Yes, I already know, I’m my worst enemy.
I’ve recently decided to quit my job and raise my children. Needless to say, our income has decreased by more than sixty percent. No longer do we have the cash to justify additional mortgages. I have excellent credit though. When I find another house to buy, will the bank look only at my current income, or will they take into account the potential rental income when processing a loan app.
I would love to be able to continue purchasing rental properties, but I feel like I’ve reached a brick wall. I no longer have the resources (income history) to purchase the way I always have, and I can’t see using some of these alternative methods when I can’t justify the rationale of both sides.
Any words of wisdom to boost my confidence would be greatly appreciated.
Thanks,
Susan
Posted by Paul_NY on January 30, 2000 at 11:01:42:
Susan:
It is absolutely ludicrist to believe someone would just walk away from 50k in equity. Why wouldn’t they just sell the property at an attractive discount to at least get most of it back. Right? People aren’t stupid. You’re just kiddin’ yourself.
This is what I was told by my loved ones prior to initiating real estate investing.
Until you’ve met a motivated seller, you probably won’t understand why just the opposite is true. People walk away from real estate for a variety of reasons.
Because a seller is ‘motivated’, all of the above (your questions) senarios are possible.
And yes, the owner (seller) of the subject to deal will be hindered in his ability to borrow funds in the future.
As for Question #3, read all the posts about Due On Sale (DOS) clauses. I guess the banks don’t want spend money on attorney fees and court cost and spend quality time in court to foreclose on a property that is generating income for them, simply because the names have change. (Don’t ya hate when people don’t do what they say they’ll do?)
You have a lot of opportunity ahead of you. Be persistant. Get there first.
Susan:
Welcome to the world of the self employed and self motivated.
Let me provide you with some brief feeback to your questions:
Yes an interest only loan can be taken back by a seller and computed on a simply interest basis. eg. a $100K note interest only at 10% with a 5 year balloon payment would have monthly installments of just the interest amount of $833.33 ($10K annual interest / 12 months). At the end of the 5 years the FULL $100K principal balance would still be due.
To some sellers the motivation of getting rid of their property outweighs the fact that the someone who purchases their home and takes title “subject to” their financing really does not let them off the hook with their lender. The KEY is to locate DISTRESS properties and MOTIVATED sellers who look to you as problem solver. If they do have over this issue as a “hot button” perhaps you can negotiate that they hold a wrap around where you pay them and then THEY pay the bank. That way they know the payments are being paid. OR if there is enough equity in the deal that you are picking up, show them that this arrangement can be only for a short period of time (1-3 years) until such time that you can refinance and place a longer term investor loan on the property and pay thier loan off.
With the lack of a “real job” you need to look at financing properties with different creative aproaches. If the property can be purchased way below market and you intend to FLIP the property for a quick profit rather than be a landlord, then the use of HARD MONEY lenders you provide short terms funds can be a godsend. If you are purchasing the property for longer term rental use, try to get the seller to finance you (remember their note can also be sold to generate CASH to them if they don’t want to hold the paper - if this is new to you call me and we can discuss it further). In other words you have to be more creative than simply obtaining your financing from a traditonal mortgage lender.
Best of luck in finding that MOTIVATED and FLEXIBLE seller
I’m not a guru; just getting started, but this may help.
I just bought two residences on one legal parcel, live in one and rent out the other. When I was trying for the loan, the rental income would have been counted IF I had a signed contract for one year.
I think that you need to speak with a mortgage broker and ask what is available in terms of loans, and how they handle the rentals. You need to do an Annual Property Operatuing Data report and so show that the property pays for itself. You would need information form the former owner to justify vacancy rate, cash reserve, etc.
Consider a purchase/ rehab loan. I was just told the 203K can now only be used for owner occupied, but in the same breath the mortgage broker told me they have 90% LTV loans at 8 3/4% right now. That would be for rentals.
Oh, when I opened my RE account at a bank I specifically asked if they did commercial loans. They said yes, then when I tried to finance a 9 unit deal they said “we don’t do that type of loan” Keep looking until you find. Don’t forget low-income housing funds (check locally) and don’t give up.
Thanks for the motivation - Posted by Susan (N.Ca.)
Posted by Susan (N.Ca.) on January 30, 2000 at 12:20:39:
It helps so much hearing that deals like this really happen. Any recommendations on books or courses. I’m a control person, and feel very uneasy if I don’t understand EVERYTHING about what I’m doing.
Thanks Again,
Susan