Jason:
Your spread or “Fee” can be negotiated but is NOT taking the sellers down payment. Here is how a typical transaction might shake out.
EG.
A property sellers Home sells for $100K where the buyers put down $5K cash as a down payment. This leaves $95K that the Property sellers will agree to owner finance by carrying back a purchase money 1st lien Mortgage & Note to be secured by the property.
The property sellers really NEED or want $85K cash as a total amount - AND don’t care how they get it.
Sunvest arranges to purchase the $95K seller financed 1st lien Mortgage & Note and funds $87,000.00 in cash for the purchase of it (or approx. 92% of its UPB-unpaid balance).
Your sellers accept $85K in total cash and you EARN $7,000.00 as a “fee” or spread…
This is represented by the difference betweeen what Sunvest is willing to fund, or the $87,000.00 cash amount funded for the purchase of the seller financed 1st lien Note and Mortgage of $95,000.00 and what the sellers will get in cash or $80,000.00 that you negotiated as a funding price to them for the sale of their Note = equals a fee of $7,000.00 to you.
Their total of $85,000.00 cash is acheive by getting the $80,000.00 in cash from the sale of their Mortgage & Note to Sunvest and the additional $5,000.00 funds being put down by the property buyer. This total equals $85,000.00 to them - which is what they Needed or wanted.
This is a very typical transaction where flexible and motivated property sellers are involved.
I come across a lot of note sellers from my “we buy houses” campaigns. What is the best way to broker the sale of these notes without calling 10 or so “buyers”? What is a typical commission?
Levi:
Brokering “paper” can be an adjunct to your current house buying business and we’ve (Sunvest) worked with over the years numerous RE investors who have earned additional income from assisting others who are holding seller financed “paper” to acheive liquidity.
There really is not typical commission just as there is no typical “wholesale” fee when attempting to wholesale a fixer upper house. Most brokers will earn anywhere from a 1 point to 3 points of the amount of funds actually paid for the unpaid balance due on the receivable being purchased.
The more complicated and difficult the deal, the less structured the market for such “paper” that is not of higher quality - thus larger fees may also result.
You are on the right track about trying to develop a relationship with a Note investor or funder as opposed to “Shotgunning” these deals all over the place hoping to find someone to work with.
With a few basic items addressed and some of the relevant file documentation in your hands its realatively easy to obtain concrete pricing from a legitmate Note funder (NOT a broker).
Posted by Jason (AL) on March 27, 2006 at 20:29:44:
Would it be feasible to structure a deal with a seller (in which they would sell their owner-financed note to a note INVESTOR) whereby I (the one who structured the deal) would/could receive the downpayment from the buyer as my “fee”, rather it going to the seller?
Would the note investor really care if >I< took the downpayment, as long as the seller didn’t care and thought it was ok?
Jaosn:
It would depend on the transaction details…
Clearly we prefer for a buyer to be establishing equity into a property via their down payment. This creates an incentive to stay put and make things work out if they go sideways in the future.
Rather than you taking the down payment as a fee. You would earn a “spread” between what the Note investor (lets say Sunvest) is willing to fund for the purchase of the seller financed Note and what the seller of the Note is willing to accept as a lump sum discounted cash amount.
Posted by Jason (AL) on March 28, 2006 at 14:41:34:
Michael, you stated:
“Clearly we prefer for a buyer to be establishing equity into a property via their down payment. This creates an incentive to stay put and make things work out if they go sideways in the future.”
Would it matter either way?
I mean, they’re paying a downpayment regardless of whom it’s going to, correct?
Say if I were to structure a deal whereby the house would sell for $100k, 5% down (at least). The sellers are wanting no less than $85k.
$100k - 5%(down payment) = $5,000 which would = my fee.
I could then “void” the fee from the note funder, or have them send me a bottle of vine from the California valley
Now say I were to give Sunvest a ring, they/you offer 90% of the note.
$95k X 90% = $88,350
$88,350 - $85,000 = $3,350 spread = my fee.
Well…in this example, I’m not trying to say that
I’d earn more by taking the down payment as my fee, but it just happened this way as a result of the #s I used. Also, wouldn’t my fee be more of a certain amount (knowing that it’s going to be AT LEAST 5% of the sale price)?
But wait, if I were to use the 2nd example, the SELLERS would’ve gotten that $5k along with their $85k you funded for their note.
so they’d come away with $90k +/-, yes?
