All Forum Posts by: Marco Bario

@Annie Driscoll

Subsequent borrowing by the AITD holder seems to be dependent on the lender. Speak with lenders - and consider that although they might agree they could lend to you today - they might not be able to when you need the loan.

Unless the existing debt has no due-on-sale provision, there will always be a risk of the underlying loan being called.

If it were to be called due:

1. If you have cash, you could pay off the underlying loan

2. You could sell the AITD to a note buyer who will pay off the underlying at closing - BUT the buyer will need to purchase the wrap for at least the amount of the underlying. I don't have enough info to tell you if yours will be worth that. AND there aren't many note buyers who will buy notes with large balances in the range you mention. 

As you know, I agree with you.

@Kris Kempe - You should consider the risks for you and the seller when wholesaling a subject to deal. In my mind, the liability and possibility of harming the seller outweigh the rewards. 

One way would be to get the real estate under contract, then bring an experienced partner in who also has access to capital, and stay in the deal as a minority equity partner. You'd learn and potentially earn a profit at exit.

Another way is to wholesale the land.

Seller-financed note buyers are looking for a 9% - 14% return. 

If your property is residential single-family owner-occupied in a good area, the buyer has good credit, made a good down payment, and twelve or more on-time payments have been made, you'll be in the lower range.

Note buyers, just like lenders, won't go above a certain loan-to-value (LTV) ratio. With discounted notes, it will be "Investment to Value" (ITV) rather than LTV, but the idea is similar. If a single-family owner-occupied property is worth $400,000 - I wouldn't invest more than $280,000 (70%) in a note secured by the property.

ITV takes priority over desired yield - so even if the note discounts to $350,000 based on desired yield, the investor still won't go beyond their maximum ITV. 

With newer notes especially, partials reduce the discount.

I'm not a fan of balloons for seller financing - especially shorter than 10 years. If your rate is higher than institutional rates - they'll be incentivized to refinance when possible. 

Structure depends on what payment the buyer and the property can afford. 

Look at area rents. Base the payment amount so you're in that range. Find a buyer with at least 10% to put down and can afford that payment.  

I'm fairly sure you can structure to sell a partial after a month or two of payments that would pay off the underlying $215K note. 

 Friends Title is attorney-owned and investor-friendly. https://friendstitle.com/

And the Solo-K would enable you to borrow $50K from the retirement balance to use as you please.

As the property seller, a wrap or AITD would protect this seller more than allowing the buyer to take title subject to the existing mortgage. 

Aside from potential owner occupancy requirements (FHA), there shouldn't be any legal issues in a lease and option scenario.

What if the seller gives you the right to master lease the property now and an option to buy later?

As the lessee, I believe you can expense the roof replacement and then wait to exercise your option.