All Forum Posts by: Marco Bario

@Hunter Reed 

Basic Seller Financing is when the property owner agrees to carry the financing for the purchase of their property. At closing, you may or may not give them a down payment. The rest of the purchase is paid in installments over time.

Subject To is when you take title to the property at closing subject to existing financing still in the sellers name. You agree to continue making payments on the existing financing, although it remains in their name. 

A Wrap is when the seller agrees to carry the financing for your purchase, but does not pay off the existing financing at closing. You will make installment payments to the seller, and they will use all or a portion of each payment made to them to make payments toward the underlying financing. 

All three methods are useful to have in your toolbox. 

 In the course of my business I review mom and pop originated seller financed notes and contracts almost every day. Less than 40% have balloon payments.

 Why limit the term of the seller financing?

 Possibly for document origination, but an Attorney won't underwrite the buyer.

@Jack Shuttleworth 

After debt service, taxes, insurance, vacancy, turnovers, etc I could see the deal looking pretty thin. However you know the numbers and I don't.

Disclose heavily to your seller. The loan will remain on their credit report. There is risk of default which could have negative impact on their financial profile. They may have issues qualifying for another mortgage due to the existence of the current debt. Make sure they initial next to all of the disclosures. What you don't want is for them to "forget" what they agreed to and claim in several years they were taken advantage of. 

@Kimberly A Renken - I purchase quite a few seller financed real estate notes. 

@Phil Moore -

You might encourage your sellers to create a first and a second.

Example:

10% down payment

70% 1st lien

20% 2nd lien

Should the note holder wish to sell the 1st, they'll receive a smaller discount because there's greater equity protection.

Personally, I underwrite balloon notes as if they will fully amortize. The risk is too great the payor won't be able to make the ballon payment at maturity. Better to keep the term under 15 years and let it fully amortize.

Buyers are going to want to see a personal guarantee. It sounds like you're purchasing in the name of your entity. There's a market for paper with no PG, but the higher discount will be in line with the increased risk.

Purchasing any investment with a group of investors enters into the area of securities law and something you'll want to seek legal council for.

@Kimberly A Renken - 

Yes you can. Teachers like Pete Fortunato, Bill Tan, or Bill Cook teach these types of methods. It's also something you'll see if you attend one of the better exchange meetings. 

You're unable to do a 1031 exchange from paper to property. If the note is giving you the tax benefits of an installment sale, be sure to speak with your tax advisor before you either trade or sell the note. 

Absolutely. 

I closed on the purchase of a seller financed note last week. I was direct to the seller/originator. If all goes well, I'll have another under contract this week.

@Hoa Nguyen -

Like any other asset (real estate, stocks, cash, auto, etc), beneficiary interest of seller financed note or contract would pass down as per the instructions of the estate or probate. Your obligation will remain unchanged.