Posted by David Butler on April 05, 2007 at 12:03:48:
I just spotted this thread in the process of doing some research. My apologies for not responding sooner, but I do note that you originally posted right during the time I was fully engaged in staging my Note Smart Marketing Workshop with Roberta Standen. Boy… how the time flies!
Anyway… interestingly enough, though the already relatively small “simo” niche has shrunken further since 2000 (retracted to pre-1996 parameters might be a more appropriate observation), some of the basic guidelines have apparently changed with regard to the steps of doing a simo closing. Though I am not personally comfortable with some of them, my two compatriots, Mike Morrongiello and Eddie Speed, seem to be - and they are two of the most active institutional simo buyers.
For much of the more redundant aspects of the topic, I’ll refer you to Mike’s recent discussion on the topic made in his reply Steps to putting it together… at:
To that I wish to add that in my own experience and from legal consultation over the years, I have shared some observations in many previous discussions here regarding “creating notes”, “simultaneous closings”, “table funding”, “safe-harbours”, etc) that I believe are prudent. As a result, in my view, it is not possible to “presale” a note per se in terms of gaining a firm commitment. As suggested in George Coates’s seminal (though no longer in print) “Smart Trust Deed Investing In California”, I have suggested that the purchase contract contain language to the effect that “this Agreement is contingent upon Seller selling the note, and upon Seller’s election, the Agreement may be rescinded within _____ days of closing in the event that Seller is unable to sell note at a price that is satisfactory to Seller”.
My belief is that to avoid “arranger of credit” status for third parties, a signed purchase contract, credit report, appraisal, and income history should be presented to a note investor for review. The investor then would offer a verbal (though written is now given by several buyers) notice of their interest in purchasing such a note upon its creation, along with their opinion of what they would pay for it.
How to allay the seller’s fears is best accomplished by knowing ahead of time what basic generic terms would be for creating a note in the first place. In the current market, 580+ credit is the best bet, and at least 10% down at close. If credit is 620 or better, 5% down can work. Senior position note secured by residential property of 4 units or less; 30 years or less fully amortized, with balloon payment due somewhere between five years to 15 years (seven years is my preference). Payor debt to income ratio 45% or less. And for better pricing, seller also taking back a small 2nd to hold, for 10% to 15% of purchase price (optional).
Again… the above is just me. I know Mike Morrongiello and Eddie Speed have both indicated over the past year that they are more lenient in their parameters these days with regard to providing assurances. Since they are both highly credible individuals with much success as note buyers, and particularly active in doing simo purchases, you can’t go wrong contacting them for their current parameters.
But won’t hurt to consider the above views as well in determining how to best approach your seller financing presentations - and I am sure that both Mike and Eddie will echo much of it.
Best wishes for your continued success, and
Have Fun For A Living!
David P. Butler