Will The Pros Please Respond to ?? - Posted by DeDe(MO)

Posted by jeff on July 06, 2002 at 20:10:45:

to the best of my knowledge on that post, he is gonna be sellnig the property for 110K, but it will only be appraised for 100K even after the sale. he is not going to be jacknig up the appraisal price, just sellnig above the appraisal. he is gonna be sellnig his 88K not for 70K which will give the note buyer a 70% LTV using this 100K appraised value. the buyer brings 22K to the closing table and the rest is funded by the carry back note proposed here, which is being sold at the table also.

i see where hes going with this, bad credit equals willingness to pay above FMV with owner financing terms. but i ahev to agree with phil here, its unlikely that very many people have 22 laying in the couch cushions waiting to be handed to you for your creative terms. once you factor in the credit unworthiness of the buyers, that further disposes of this possibility.

you may get this accomplished, it is theoretically possible, but its gonna be tough for several reasons. the main three i see here are the above FMV selling price, the 22K needed at the closing table in cash, and the liklihood of fniding a buyer for the disounted note. this note while being at 70% LTV of the house itself, is only discounted 18K for the buyer. this is somewhere in the range of 80% LTV of the actual lien placed on the property for your note. the other 10% that makes up the difference of the LTV’s is equity owned by the buyers once they hand you 22K and is not recoverable by the note buyer, although it does give them greater security for repayment and recovery of their cash invested since the property is actually worth that other 10% on the auction floor.

oh yeah 11%? thatll kill the deal more than likely without a motivated buyer waiting in the wings.

Will The Pros Please Respond to ?? - Posted by DeDe(MO)

Posted by DeDe(MO) on July 06, 2002 at 15:31:39:

I have been thinking of structuring flip deals using private note simultaneous closing technique and wondering whether following idea would be practically feasible or not. If this idea works, I can have more marketability of the home to my end buyer by offering owner financing, yet I can quickly cash out my profit as simutaneous flip.
Here is my scenario:

  1. Look for a vacant house with very motivated seller for quick sale.
  2. Offer 25-30% off low ball price with 2-3 weeks closing with a right to show off the house to my potential home buyers before closing.
  3. After seller’s agreement on the contract, look for a home buyer who has some credit problem but can pay large down.
  4. Offer 80% owner financing with 20% cash down.
  5. Look for a note buyer who is willing to buy unseasoned 1st postion note on SFR.
  6. Close Home seller me , meHome buyer, me note buyer deals simultaneously.
    Example with figures:
  7. Identify motivated seller and a Home with $100K value.
  8. Purchase contract with $75K with 2 weeks closing.
  9. Put an ad on paper " Owner financing, No bank qual. 3/2 nice home. Asking price $110K".
  10. Find buyer who can qualify 20% cash down ($22K),$88K Owner financing @11% 30yrs amort. 5 yrs balloon $838.04/mo PI.
  11. Sell $88K un-seasoned Note at least at $70K 17.19% yield. (70% LTV)
  12. At closing table,Note buyer put up $70K, Home buyer pays $22K down, Home seller takes $75K and I get the remainder $17K as my profit with zero money out from my pocket.

Should I set my screening criteria of a home buyer with high credit at say, FICO 600 and above?

If I line up my end buyers who can qualify for good yield note before I identify the home to put them in, am I going to be regarded as real estate broker or mortgage broker?

Please advise.

Thank you.

Any gameplan that requires . . . - Posted by JoeKaiser

Posted by JoeKaiser on July 07, 2002 at 07:27:12:

Any gameplan that requires the aligning of planets to make happen is not a gameplan you want to make a career out of.

It just doesn’t happen that often.


Re: Will The Pros Please Respond to ?? - Posted by JoeS

Posted by JoeS on July 06, 2002 at 21:24:15:

I spent 6 years doing simultaneous deals with “shaky-credit” buyers…buying low, selling for appraised value, taking back a 80% first, and selling that newly created note for a discount. When Associates went away so did the way I do business. “They moved my cheese!” so I had to find new cheese.

The past 18 months I have found better homes in better neighborhoods, attracted better buyers with better credit and have made better money! See what I am getting at?

Now I either buy for cash or with seller financing, do some minor rehab and sell for appraised value. I arrange financing for my retail buyer and receive anywhere from 90-100% of my selling price. The better their credit the better everyone does.

Re: Will The Pros Please Respond to ?? - Posted by BIGDADDY(MD)

Posted by BIGDADDY(MD) on July 06, 2002 at 16:10:49:

Hard to give real meaningful advice because your analysis has a lot of WHAT IFS in it. Even the quick note deals that I have been associated with take at least 2 weeks to come together and that’s assuming that everything for processing the note by the end purchaser is readily available. Next, although we would all love it there isn’t a huge pool of 20% down buyers. You also say the the home is valued at $100K, then you say that you are going to sell it immediately for $110K. Where did the extra value come from. If you were holding it and doing a lease option for a year or so you could probably sell it for that increase provided property values don’t stagnate or decline. (that’s a risk that everyone faces if holding property for any length of time, rare but it can happen).The only other way to get that increased price to the table if the property doesn’t appraise for it is to have your buyer come up with even more money. This leads me to the next question. You don’t assume that you will have to pay any Closing Costs based on your analysis, I’m sure that was just an error because more than likely you will incur some Closing Costs on both sides of the transaction. In todays world that could be an extremely costly mistake.
Now I should say that what you are talking about is done all of the time by many different people across the Country but make sure you have all of your numbers together and understand that there is some risk no matter how well you think a deal through and try to account for everything.
Best of Luck.

Re: Will The Pros Please Respond to ?? - Posted by phil fernandez

Posted by phil fernandez on July 06, 2002 at 18:50:43:

What you propose is basically sound. Two things stick out from your post that will be hard to deal with. One, not a lot of buyers have the 20% sitting around. Especially people with credit issues. Doubtful if they have the dicipline to save that kind of cash.

And secondly, if the house is worth $100,000 how are you going to get it appraised for $110,000. The note buyers are smart and will require a professional appraisal on the house.