Questions Regarding Seller Financing
With Jayden's Nudge, I am posting this here:
Marc,
I just read a couple of your articles regarding seller financing on BP. Very informative, I greatly appreciate the information.
I am researching the possibility of buying townhouses in the Minneapolis suburbs (Lakeville/Farmington) all cash and financing them to buyers on an 80-10-10 setup as your article described. Currently, townhouses are selling at deep discounts because they are difficult to finance with over 50% of the units being rentals and local banks being afraid of them after losing their shirts the last couple of years. I can pick up a townhouse for $70k all-cash that could sell for over $130k financed. My question is, what do note buyers need to see for the primary note to be attractive and easily saleable?
If I have a note at $104k, 30 yr. fixed, 6.5% interest on a 130k appraised townhouse, what would that be worth to a note buyer? Could it be structured differently for more value?
Do note buyers have any issues with a note on a townhouse? I know local banks won't carry them. Any help would be appreciated.
Thanks,
-Jaden
Reply:
Jaden,
Thanks so much for your kind words. I would like to work with you on these deals. Are you going to be selling these to buyers that will be living in them as their primary residence?
These would be my suggestions:
1. Sell to buyers that will live in the property.
2. Get at least 10% down, more would be better.
3. Close with a 3rd party title company and get a lenders insurance policy from them. You could pass this cost on to the buyers.
4. Make sure you are listed as loss payee and additional insured on the insurance policy.
5. Have a professional servicing company collect your payments, keep the books on these and do the government reporting and noticed required.
6. Plan on keeping the 2nds. for long term cash flow.
7. Charge a little higher rate like 8 to 10%. You can demand a premium because the financing is not available elsewhere as long as there is a demand for the units at affordable monthly payments.
8. You will be directly competing with the rentals. How much do these rent for on a monthly basis? Your payments have to be less pr month for your buyers than what the same units would cost to rent. In order to move these I believe your buyers payments will need to be less than rent including the taxes and insurance. If you can achieve this you will be able to quickly move all of these units to folks that are currently renting the units right next door!!!
Some questions I have would be why would you want to sell these notes once you create them? Can you afford to hang in these deals for a while? The longer you can possibly hang in there the less the discount your notes will take.
The note market, investors tastes and what can and can not be done as far as selling notes is changing with the wind right now. If you can get these rolling and performing, there should be no problem in finding investors that will pay a fair price for your notes.
I am located in Kalamazoo, Mi. and enjoy networking with real estate and financial professionals nationwide. If there is anything I can do to work directly with you on these projects, I would welcome the chance. My regular e-mail is: [email protected]
Happy Easter
Sincerely
Marc Faulkner
Creative Financial Solutions
(269)353-9238 Office
(269)806-8802 Cell
(866)364-1457 fax
www.creativefundingservice.com
We offer Fast Cash for first position land contracts, mortgages, trust deeds, business notes, structured settlements, inheritances and lottery winnings Nation wide!!! Quick service from quote to funding since 1999.
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Comments (6)
Yeah when it comes to green notes that are flips, buyers are always skeptical There are a lot of notes and folks looking for money so note buyers can pick and choose deals right now.
Marc Faulkner, over 13 years ago
good points..when i sold my last note, the note buyer wanted invoices and receipts for the remodeling, and they were still skeptical of the value....it's a tough market indeed :)
Account Closed, over 13 years ago
Bryan-I personally always place a lot of weight on what the note holder paid and did to improve the property. I always look at a BPO or appraisal (if needed) but, also always find out exactly what the note seller paid for the property before creating the note. I think Jaden was buying these units in bulk and getting good discount because of it. Please note that I also said to hold on to these as long as possible to create value.
Marc Faulkner, over 13 years ago
nice post marc....when pricing a note, how much do you weigh in that the seller of the property (note holder) only paid 70k and is quickly flipping at a higher value? do you look at the appraisal, or do you look at the price he originally paid for the property? was this buyer planning on rehabbing the townhomes at all to justify an increase in value or was he simply providing financing?
Account Closed, over 13 years ago
Right on the money!
Mitch Stephen, over 13 years ago
Marc, Very informative post. I have been thinking about this business model for a while and your post provides great information. Thanks!
Sharad M., over 13 years ago