Re: standards for holding a second - Posted by GL(ON)
Posted by GL(ON) on April 13, 2002 at 16:28:29:
They are only asking for 10% as a mortgage. Is it a good deal otherwise? Would you have to sell for 10% less to get an all cash deal? Is it worth it to put a deal together?
If it is a good deal, and you want to sell now and not take a chance on getting another buyer with all cash, then look at whatever you get on the mortgage as a bonus. In other words you can afford to be a little bit chancy.
I don’t mean you should be careless, I just mean you shouldn’t lie awake nights tossing and turning.
You need to find out what the going rate is and negotiate the rest with your buyer. Will he have the money to pay you off in a year or 2? In any case inflation should make it possible to refinance and pay you off in 5 years, if not sooner. So a term of 1 or 2 years, up to 5 years should be good.
Interest rates are low now. A second at 10% or 12% would be a good deal for you, where else can you invest your money for that kind of return?
Your protection from future foreclosure is the character of the buyer, and how much real estate goes up in the future.
Have a good real estate lawyer draw up the mortgage papers for you. It will cost money but it may save you $$$$ in the long run.
If the buyer defaults you will have the choice of picking up the first mortgage and taking back the house, or letting it go and taking your chance on ever getting any money.
There is always a chance the mortgage will end up worthless, though you will collect a few payments on the way. But most of the time you will collect every penny with interest. Or possibly get back the house worth more money than it is now.