questions on Notes

[Jasmine C.]

I know a guy who says he buys homes for cash, rents out the home for 6 months, seller finances the home to the renter then sells the note.  when I asked for an example he said you buy can buy for 50K with 750 rent already rented,  seller finance 5k down, 10 year at 6% would cost the renter around the same as their current rent but now they own it.  then sell the note worth 75K for 65K.  is this possible?  do people actually do this? do people actually buy those kinds of notes?

[Darren Eady]

It's not a bad plan, but I wouldn't be the note buyer for $65k on a property just purchased for $40k just because the seller says it's worth $75k. As a lender, my valuation of a home, in the first year of ownership, is the purchase price plus rehab costs at best. It's not that the purchase, repair and rent situation wouldn't work, it's that you (or anyone) should not buy the note for so much more than the home was originally purchased for. Make sense? The notes I create and sell are between 50-65% LTV - NOT 150% LTV