All Forum Posts by: Alfred Bell

Marc Faulkner:
Excellent suggestion, and very gracious of you. I also support your suggestion of doing it on this forum for everyone's edification.

Based on what I've learned thus far, let me lay out my idea of how the note should be structured and what features it should have and then I'll present it to you (on this forum) for advice, correction, omissions, etc.

Once done, we can then speak on the phone to handle the remaining details and fine tuning, with the end product of me being able to go into action on this.

Upon the completion of this action we should work out some form of compensation.

Got a lot going on today so please give me some time to go over the data I've accumulated and make my next post.

NOTE: I am also very grateful to everyone else that has given of their time to give me their input. It will all add up to my being successful in this endeavour.

Alfred

Wow. Now I'm really confused. Was hoping for clarity and understanding.

Can anyone suggest a proven, reputable firm or person that I can go to here in SoCal who I can consult with to advise me on how to properly structure a loan/note to do this owner carry on this Palm Desert condo?

All very good and helpful feedback from you all. Much appreciated.

Bill Gulley: "And, it was mentioned above that you use an originator with secondary market experience..."

Not being familiar with this area, if we did decide to sell with owner financing, how do I find an originator with secondary market experience? Are you referring to a loan or mortgage broker who would draft the promissory note, ensure that fairness existed on both sides, ensure that all was legal, etc?

Dion:
Clarifications...

This complex has 44 units. Only 8 of them have a larger floor plan with a front and back entrance and an enclosed patio with storage area in the back. My condo is of the 8 and are more desireable.

One of the most desireable features for this complex (not just my unit) is its close proximity to El Paseo.

The 200k purchase price was ok. The sellers wanted out fast so they could move back to Canada and dropped the price by 30k.

I originally started with an agent who said she could sell it for 350k. We had a falling out for certain reasons and ended our relationship (I then went FSBO). I've had agents I've talked to who have shown the place say the price was ok when we were asking 320k. Another experienced and knowledgeable agent who lives in the complex said that 300k was a good price. (I know that some agents who want the listing may tell the seller that they can sell at a higher price but these agents were not seeking the listing from me.) Another agent did a BPO and said the range on this condo type in the area was 240-280k but mine would be at the top of the range due to the nice features.

I'm not going to mess with the permit situation. I disclose to buyers that it isn't permitted (altho built to code) and that technically (and per the assessor's data) it is still classified as a 2 bedroom. Clarification: it was a tiny office when I bought it (so the added room was actually done earlier by the owner before the owner I bought it from). I just pushed the wall back into the second bedroom to make it larger, added a closet and ran AC into the room. Any buyers that were interested, really liked the condo and that extra bedroom/study and were not concerned about the fact it wasn't permitted.

I guess the main question is renting or selling/carrying the paper? The goal is to break even or take as small of a loss as possible. At first thought, the hassle of having a rental property, plus the liability factor of having to continue to own a property, doesn't seem as favorable as having income from a note with no liability from ownership. Plus, I was told that you can usually get a higher sale price if you carry the paper (may not be true).

Joel Owens: Thanks for the feedback. In response...

Haven't used an agent/broker per se. Put it up on the MLS through a flat fee broker and the marketing and selling has been up to us. Flat fee broker gave us a supra lock box so agents/brokers have access to and can show the property any time. Supra box notifies me of a showing and who showed it and then I contact them for feedback.

Yes, the price was high at the beginning. More bank owned properties and distressed sellers have created more inventory over the last 6 months or so which has depressed prices.

Most agents I've talked to have said the current price is ok, maybe a little high. What sets the property apart from the other comps, or puts it in the higher range, is that 1) it is a full remodel and beautiful, 2) there are only 8 full size walk through condos in this 44 unit complex and they rarely come available, 3) these condos are all 2 bedroom but I did structural work and made this on e a 3 bedroom (up to code but not permitted), 4) and the biggest feature is that it is a fantastic and desireable location in that it is in short walking distance to El Paseo (sort of the "Rodeo Drive of this desert area" a couple miles of art galleries, high end stores and restaurants).

We would advertise this as FSBO without agents at first so we don't have to pay a commission. If no luck, we could then go back on MLS and invite agents to bring potential buyers and we'd pay the 3% commish to the agent. (Most likely our chances of finding a buyer would be through an agent/broker but it would be worth trying FSBO at first to save a little money.)

Bought it for 200k and put 70k into remodel. Holding costs have brought us up to 275k of capital in this investment.

My partner is the money man in this. He just told me that he has no where else to put this money (we are not going to do any more projects together) and he doesn't want to go back into treasuries or CDs, so a well secured note at 6% or more might be something he would be content with.

I think if we sold it for 290k, got a 20% DP and financed/carried 232k we'd be good. From what I'm learning here on BiggerPockets, maybe we'll make the term 3 years with a balloon (amortized at 30 years) and just hold the note ourselves until borrower refinances and pays us off. Seems like this would be the best way to guarantee we break even or maybe even make a profit. Worse that could happen would be that borrower defaults and we keep the DP and all the payments and either get paid from a foreclosure sale or get the property back again and resell it again. This is an interesting arrangement because it seems that the noteholder really wins if he "loses" ("loses" meaning that the borrower defaults on him).

Seems to be a safe method of being able to make a profit rather than break even or taking a loss from having to sell right now.

Appreciate any other feedback you might have on this subject or any of my thoughts.

Thanks in advance.

Bill Gulley, Dion DePaoli, Mark Faulkner, Will Banard, etc.

Is it vital to follow this advice below... will it make for a higher valued note and easier saleability... or can a promissory note just be created by the owner and submitted to escrow for the buyer/borrower to sign?

"Best to have a mortgage originator do the deal and have it squeezed with their license. Note could be worthless without it."

THANK YOU to everyone thus far. All of your answers and advice is really helping me to get a good reality on the note investing business and will help me to structure this note at an optimal level.
Alfred

Bill Gulley:
Great advice Bill. Thanks very much.
Why am I selling the note?
I have a partner in this: he was the money guy and I was the project manager. We expected to rehab and resell quickly. Market is very slow. We've had it on the MLS for about 5 months and not many buyers around (only got some real low ball offers). We want to get his money out as soon as we can, (plus values could continue to fall in this area).

We don't want to do rehabs any more. My partner doesn't necessarily want to own it as a rental property, although he'd consider it. He'd like to use the money for private lending with me or put it into something that is safe with a decent return. He may even want to keep this note, which he is considering now. May be one of the best investments he could have in this economic and business climate.

What about a prepayment penalty? How long of a term should it be?

Let's say that I decided to hold the note (season it) for 2 years before selling it and I stipulated a 3 year prepayment penalty term. That would mean that the investor who bought the note from me two years later would only have a 1 year prepayment penalty term. Is the length of penalty term an important factor for a note buyer?

I'm going to sell a condo down in Palm Desert California that I fully remodeled. I want to sell it with owner financing to facilitate a fast sale (lot of inventory in the desert and market time is VERY slow). Asking price will be around 300k (which is at or a bit above the FMV). Then I want to sell the note. Before doing so I'd like to know exactly what notebuyers are looking for so that I know how to structure the note.
This is what I'm considering: 20% down, carry the paper on 240k; 6% interest; principle/interest loan; 8 year term/amortized for 30 years with balloon payment at the end; 2 year prepayment penalty; will season note for 6 months.

Is this desireable? Acceptable? If not, please give me your feedback so that I can create the optimum note to facilitate a quick sale.

Also would a note like this be bought at par or is a discount expected? If discount expected what would be the approximate discount required?

Thank you in advance.

Alfred