All Forum Posts by: Chase Gibson

Steve, I totally agree.  Real estate is more of a relationship business than it is a property business.  Thanks for the insight.

 For sake of argument how is this any different from telling a bank or private lender you'll run out a 30 year amortization on a home and then you decide to refinance or sell?

 Great, and simple truth right here. Thanks for your input!

Just to clarify, so that I do not get crucified any further (@Dan Kistler): I HAVE NOT MADE THIS OFFER!

I am bringing it up for discussion because I know negotiation wise it is a great strategy, but I had strong hesitations due to the obvious ethical dilemma.  I believe you never hurt yourself by over communicating, so I know how I will move forward with this negotiation.

I guess the true question is: When is it acceptable to use your greater knowledge in a subject to your advantage?  For example: If a house flipper wanted to be completely transparent with the person they are buying the house from, they would teach the seller how to flip the house themselves.  By not disclosing to the seller how to flip the house themselves, they are withholding valuable information from the seller.  Does this happen? No, because the house flipper has a greater knowledge in the subject and uses that to his advantage.

In my original question, my greater knowledge is in contracts and financing property, so is it acceptable to use that knowledge to my advantage?  I think for me I want to operate a transparent business and therefore honesty is very important, but I thought this was an interesting discussion to have.

The seller is open to owner financing due to not having to pay all of the capital gains tax at once, but rather pay it over the life of the loan to me.

I would essentially be leading him to believe that he would be able to pay the taxes over a period of 10 years, and then turn around and force him to pay the taxes in full 6-12 months later when I refinance.

I have an ethical question related to making an owner financing offer.  Here is the offer I am considering making with theoretical numbers to get everyone's feedback on:

The owner would like to sell the property for $115,000.  I am considering making an owner financing offer of $90,000 with a 10% interest rate, amortized over 10 years.  I would be agreeing to this higher interest rate in order to make the lower purchase price appear appealing.  I would then refinance to a lower interest rate in the next 6-12 months. **The owner financing agreement would not include any penalties for early payoff**.

The question: Is it unethical to make the seller accept a lower offer price, by offering a high interest rate, only to refinance quickly, unethical?

Please let me know if my question requires further explanation!

I am in the OKC, OK area, and I stick pretty close to looking for deals that meet the 1% rule.  To speak to the numbers on the deal it would be helpful to know what you are using for financing, insurance, taxes, repairs & maintenance, vacancy, and capital repairs.  All of these items need to be considered for evaluating the property.

Will this book be available on Audible.com today/soon?

One thing i see is the 12% vacancy expense you are including.  I am all for being conservative when including vacancy costs in running the numbers.  I use 8%(1 month per year) as my vacancy rate when running numbers.  Especially in a larger house like you are analyzing, and targeting families, it is even more likely that those families will want to stay for longer periods of time.

If you run it at 8% instead of 12%, that is an extra $54/month or $648/year in cash flow.

Also, in your $610 loan payment, I am assuming at least some of that is going to principal. Granted that is not true cash flow, you are benefiting from your tenant paying down the mortgage, and giving you more equity in the house. This equity that comes from the tenants paying the loan down could also be used as a HELOC to perform capital expenditures down the road, which could allow you to be a little less conservative with your CAPEX monthly expenses.

Thanks for all the information.  It sounds like my best bet is to talk with the current owner and try to get him to sort things out prior to the closing.