With A Little Twist... - Posted by Sheik

Posted by rayrick on April 16, 1999 at 08:37:32:

As I see it, you’re looking for a buyer who could buy MOST houses on the market. You paying closing costs is nice, but it’s not that big a deal. Do you think you can find a buyer under these terms in, say, a couple of weeks? That’s the rub as I see it. Still, what do I know, it could work I suppose. Keep up posted if you try it.


With A Little Twist… - Posted by Sheik

Posted by Sheik on April 15, 1999 at 08:41:32:

I would appreciate some comments on the foll.

I am familiar with the simultaneous closing technique where the investor contracts the property at about 80% of FMV and sells the property for 100% FMV w/ owner financing. The investor will create a 1st mortgage for 80% of FMV, a 2nd for 10% of FMV and the new buyer comes in with 10% down payment. The investor will sell the 1st (most likely at a discount) and together with the down payment from the new buyer will cash out the original seller. The investor will hold the 2nd as income.

Nice technique, but it requires the investor to purchase the property for not more than about 83% of appraisal (if he/she wants some cash at closing). With my market being so hot, buying for 83% of FMV CONSISTENTLY is not easy.

Now for the twist…

With money so available…
Why not have your end buyer go through a local mortgage broker for financing! I have spoken to a local mortgage broker who can fund loans for buyers with as low as 580 FICO score and all they need is 3% down. By doing it this way I can contract to buy as high as 90% of FMV and still make a decent profit.


FMV ---- $100K
My purchase price — $90K
My sell price ---- $105K (The Mtg Broker said that it’s not a problem to up the price by 5%…the appraisal will usually come in at the sell price if it’s not outrageous)

Buyer puts 3% down and qualifies for a new mortgage. Potential profit - $15K minus administrative costs.

Even if I have to offer some seller concession to aid the buyer, I am still coming out way ahead. I will even be happy to get $2K-$3K at closing and hold a 2nd for income.
Stacking up a bunch of these 2nds can make quite a difference.

My goal is not to make a killing on every deal (which will probably come once every few months), but to create some kind of CONSISTENT albeit low profit business.

So what do you think…

Your comments are most appreciated


Re: With A Little Twist/lemon or lime… - Posted by Bud Branstetter

Posted by Bud Branstetter on April 16, 1999 at 11:51:09:


I have finally set aside some time to address your post. While this is only my opinion I believe it is a fundamental of successful investing. It is flexibility. Flexibility on the buy side is a fundamental also but your post was addressing the sell side.

My goal is to first find someone that wants to buy the house. Then the question becomes how to finance their purchase.

My approach is to find out what monthly they can afford and what cash down they can come up with. At this point in the economy my “feel” is that only 20% can qualify for the FHA type loan, 60% need help, 10% need the use of owner financing and 10% I would not want even as a tenant. I recognize that the owner financing can get things done quicker in many circumstances with less hassle. The drawback is that it limits the cash to 80% plus down.

By having the mortgage broker review their application he can determine what type of loan they are likely to qualify for. It may only be an 80% loan. In those cases I feel I can make more by selling the note myself. More likely they can get an 85 to 95% loan. The mortgage broker can also determine what is needed to improve their credit so they there will be more cash to me. This is especially valuable on L/O where the ITV into the house may be 90% but little down.

It may be that they do not fit into the criteria that I would prefer. At that point it becomes an issue of should I retain them (or stall) as a back up contingent contract. One of my local investor friends just got the news back that the buyer could only get an 85% loan and that the mortgage company would want him to carry a 10% second. Since he has had unfavorable experiences with small seconds he is willing to wait for a more acceptable (qualified buyer). He believes there will be other buyers he also believes that he can save the Realtor’s commission plus get the additional cash. I don’t object to the small seconds as long as I can control the collection on both. But it is also a decision that is up to each investor.

Your area may be totally different but on rehabs the 80/20 rule is applicable. Invest in the price range where 80% of the inventory is available. Last night the local hard money lender said that was 40-60K. As you go higher the supply becomes smaller and the buyers more demanding. There are numerous buyers in these areas that may not have 580 FICO scores but can still become a homeowner.

The flexibility on the buy side comes in on other properties. Being able to solve their problem and knowing how to structure going in influences your exit strategy. I would rather not limit myself to go after only rehabs, L/O’s or some other niche. While I may flip a rehab because I prefer not to do it at that time it does not mean I should not recognize it or market to it. There is nothing wrong with finding a niche and preferring that as long as you recognize that it is limiting.

Re: With A Little Twist… - Posted by BankRobber

Posted by BankRobber on April 15, 1999 at 18:37:55:

I see two problems:

  1. even if (a big if) you have a buyer waiting to buy the property, you would have to tie the property up for a least three weeks in order to get this type of loan processed.
  2. People will not pay more that FMV for a house unless you are offering them financing which they can not get anywhere else, that does not seem to be the case here. You do not say, but the type of loan the mortgage broker is talking about will most likely require the buyer to have verifiable income and certain debt ratios, why would someone that has 3% down, verifiable income and half decent credit want to pay 105% of FMV for your house?

Re: With A Little Twist… - Posted by Tom

Posted by Tom on April 15, 1999 at 09:37:39:

I am closing today on my first house (my home). He is my deal:

Fico score of 615
7.125% interest rate
3% down
First time home buyer.

In this case, the mortgage broker is everything. I believe that my payment is even cheaper than FHA which is at an even cheaper interest rate. The difference is I am not having to pay PMI. A greater percent of my payment is tax deductable. I went to other brokers that would not even touch me.


Re: With A Little Twist… - Posted by Carmen

Posted by Carmen on April 15, 1999 at 09:16:59:

I, too was thinking of a similar strategy. I would be interested in comments from more experienced investors, to see if there are any pitfalls we are not seeing. I know I could purchase properties at 90% all day long - the caveat will be finding buyers quickly.

I, too, work with a mortgage broker who has been “throwing” people our way, as long as we can hold a second - for those people who cannot qualify for the low-low down loans due to employment issues mostly (self-employed). I’m just trying to work out in my head how exactly to structure these for a win-win-win, and to foresee the potential pitfalls - the worst case scenario I can see is the loss of the deposit, which would not be too bad if you have to give up one or two, but close on a far larger percentage…

Re: With A Little Twist… - Posted by Sheik

Posted by Sheik on April 16, 1999 at 07:52:01:


Thanks for the reply. This is the kind of discussion I was hoping to start.

As you know an appraisal is not a fixed number. It is difficult to say what a property is worth. There is always a grey area. What I am trying to get at is even if I were to ask for a price that is 5% more than what comps average in the area should not be a big deal or even noticeble.

Why should they pay premium price…because I’ll pay all their closing cost (thru seller concession)and all they’ll be required to have is 3%.

Yes, these loans maybe FHA and may require some hoops to jump through but this just another tool and if the buyer fits…then why not?

If I cannot find such a buyer and I am forced to offer owner financing, then I still have to find a buyer with at least 10% down (this sometimes can be hard).

The way I see it is as follows:

Owner Financing


  • My end Buyer can have so-so credit (580+ fico).
  • Debt ratio can be high.
  • No closing costs (except his lawyers fees and appraisal).
  • can sell for about 105% of FMV because of owner financing.


  • I have to buy for not more than 83% of appraisal.
  • My end buyer needs at least 10% down + appraisal and layer fees.
  • I may have to take a discount on the note I sell.
  • Will have to hold 2nd mortgage as part of profit.



  • My end buyer need 3% down total.
  • No closing costs except lawyers fee (i will pay closing costs through seller concession)
  • I can purchase at higher prices (approx 90% FMV)
  • No note to discount.
  • My end Buyer can have so-so credit (580+ fico).
  • can sell for about 105% of FMV because of of easy terms (3% down + seller concession)
  • No 2nd mortgage . All profits cash on closing.


  • My end buyer may require to go through some qualification.

Am I still off in left field???

Thanks for the input.


Re: With A Little Twist… - Posted by BankRobber

Posted by BankRobber on April 16, 1999 at 20:13:53:

to repeat what rayrick said, it is just not a big deal that you are offering to pay closing costs. You also state that you will be able to get a buyer to pay 105% of FMV because you can get them a loan with only 3% down (“easy terms”), I do not see that this is a big deal either unless qualifying really is easy. Advertising "easy financing’ will get you a lot of leads (realtors use that trick all the time), but unless you can be flexible as Bud suggests, I think that you are going to hit a lot of dead ends.
p.s.: You are going to have much more difficulty finding Buyers to accept the high interest rate terms of “owner financed” properties for homes above $125K.