All Forum Posts by: Account Closed

Hi fellow investors.  I have a question for those of you who may know the answer.  I have done many seller financed deals in the past where the existing property was already owned "Free and clear" by the seller.  The deals worked out great because I simply make my mortgage payments via a loan servicer and everything is kosher.  This past week, however, I found some seller financed deals where the seller had an existing mortgage on the properties and wanted to involve a land contract in the deal for 3 years.  The homes would be titled to the seller for 3 years and then titled to me after I refinance the note somehow.  During closing though a new mortgage would be created, down payments made, and an interest rate established.  It's not all 100% clear to me how these deals are structured as ultimately you have to ensure the seller pays their lender with your monthly payments.  It almost sounds like a lease w/ option to purchase deal, but with a few caveats.  I've read that things can get dicey because the seller's lender ultimately holds the 1st position lien and can foreclose on the properties should the original seller decide not to make his payments.  Then your investment gets kiboshed.

What are everyone's thoughts?  Has anyone done deals like this successfully and is there a way to structure it so that the buyer can be protected from foreclosure or penalties due to the seller not paying his/her note to the original lender?

I've seen more than one example of this type of deal too.  Several in fact so it seems like it's being done - just don't know how successfully.

Thank you for any feedback!

Thank you @Alexis J. for clarifying what I was saying about the leases.  I apologize if I misrepresented that feature.  I didn't know "Cozy Lease" was the term technically used! :-)

Yes, it is very legit.  I used it to help a family member rent their property out.  It is extremely easy to use, crafts leases for you, generates your listing and syndicates it, and takes care of the background/credit checks.  It is hands down one of the best landlording tools I've used.  It's free to setup an account and look around the dashboard / admin control panel.  You don't have to provide any banking information until you're ready to receive rental income via ACH/direct deposit.

Welcome @Jeff Prather.  Couple quick tips.  Memphis is probably the hottest market in Tennessee right now.  Super low prices and high rents.  Ohio is also a hot bed and where I'm mostly investing.  Indianapolis is somewhat strong too in some areas.  Don't necessarily try to invest in your own backyard.  Sure it's great to physically eye the properties, but you may be losing out on better deals in other states by honing in on just your turf.

3.24% interest only currently.  My bank later introduced a 2.95% rate after I opened my line. I would have had to pay $400 to close the account and reapply just to get the new rate.

@Presh Dineshkumar Here is how they pull it off.

1.  There will never be a time when all 10 homes are vacant at the same time.  If the investor did a good job buying in low vacancy counties AND uses good property management or good tenant finding techniques, then you should have very low vacancy.  If all 10 homes go vacant and stay vacant long term, then the global apocalypse will have happened...there are just too many renters right now in the market for this to happen.

2.  In the event one or two houses does become vacant and you have used leverage/debt, hopefully you've received good interest rates making your payments affordable.  Finding a good lender is key here.  That is how the big boys do it.  They either pay cash or use a very good lender to get great terms on the property so that they can pay the loan for 30 days while they place a new tenant.

3.  It's incredibly important to diversify.  Don't stop at 10 properties.  Buy more.  Keep going up and up until you have a nice cash pool to dip into.  Then start doing flips, buying notes, tax liens, and more to help increase your capital while the rentals provide a foundation to rely on in case a fix and flip goes bad.

By the way if you plan on managing the property yourself, try using a service like cozy.co or something similar.  It will make your life a lot easier! :-)

I personally used a HELOC to fund some investments myself and it's a great way to do so. The 3 day period of rescission should only be used if you wish to close the HELOC line and not re-open it. You can certainly open the line and draw on it when you wish. Some banks will charge a maintenance fee of sorts if you don't draw on it during the whole year, but usually nothing crazy. My bank doesn't charge any fees for having a zero balance.

The good thing about having the HELOC handy is now you have capital to work with. My bank even suggested I pull the money out and store it in a money market account with a higher interest rate. In doing this, it would make the funds immediately available for purchasing a deal, plus it would offset the interest being charged on the HELOC itself in effect lowering your given rate by allowing you to earn interest on that money you just pulled out. The interest only payments on the HELOC are typically tax deductible too so all in all it puts you in a good spot if you have high cash flowing properties you're eyeing.

@Account Closed If you can swing it, try refinancing using your personal name as the guarantor on the loan. Yes, LLC's will command higher interest rates because you're taking out commercial / private loans. If you go for more retail / residential loans you'll get a better deal. My loan officer might be able to help, but no guarantees.

@Account Closed I see where things went wrong.  Not that the deal was bad - it looks good on paper except for a few key things.

1.  The taxes are VERY high.  I would not have invested in this area because of that.  You need to look for counties in the USA that have low taxes.  Parts of Ohio, Memphis, Indianapolis, Atlanta, Kansas, and much more have more amicable taxes for something like this.  I'm purposefully staying away from NY and California for these reasons.

2.  Your insurance seems awfully high.  I pay $30 per month on average for my units.

3.  You should make your tenants pay all the utilities.  Why are you fronting that money?

4.  Your mortgage is very bad for a refinance.  Yes, I realized you didn't have many options to choose from, but I would refinance asap.  I have a lender who can do 15% down payment and 4% to 5% interest rates on investment properties.  Message me for details.

Overall, you have to minimize your expenses.  That's the single biggest strategy in all this.  This could be an excellent rental considering the gross amount you're pulling in.  Get the refinance done, make the tenants pay the utilities, find a different insurance broker and ask for the lowest premium/highest deductible available, and find a way to get those taxes lowered.  Maybe there's an appeal process you can go through.

Yes, things are still going well.  My property is still cashflowing nicely.  I've had a few repairs here and there but nothing expensive.  @Patrick Shawn Faherty I hope your call goes well with GEG.  I think you'll find they have quite a lot to offer.  They're not perfect by any means, but they are legit and have higher quality offerings than other turn key operators I've found out there.