All Forum Posts by: Phil Damjanovic

@Bill Gulley

Thanks for the response, that's really detailed information. Fortunately, I've consulted with an attorney and we've covered all these questions. It's just going to be a straight deed of trust, if he defaults I'll do the regular foreclosure, and it turns out there's a misunderstanding about the SSN...he does have one and is not a foreigner. I think he just doesn't have credit history. I'm getting that cleared up now.

Either way, my question in my last post was about affordability. I want this to work out for everyone and now that I've seen his income data, I'm wondering if $46k over 4 years at 8% isn't too aggressive. It would put his housing debt-to-income ratio around 40% or so. Would like to hear any thoughts on that.

BTW I talked to a note broker/buyer over the phone a few minutes ago and he told me that ballpark cash value on a note like this might be 35k-40k (unseasoned) and he'd be interested in talking again after I close. So that seems to indicate there could be a potential quick exit strategy.

Ok, I'm back. Need a gut check here. We've agreed on $86k as the price, $40k down, $46k financed over 4 years at 8% no balloon. I got the buyer's tax returns, bank statements and paycheck stubs. Income is in the low $30k range + he'll make $700/mo from renting out the other unit in the duplex.

Taxes and insurance would be about $240/mo and the note to me would have a monthly payment of $1123. That puts his housing debt expense to income ratio around 41%, which is high. Any other debts, like a car payment, would make the ratio even higher (getting hold of that info soon). I'm concerned about the affordability of this loan. On the other hand, it's only for 4 years. Any thoughts from those of you with experience in holding notes?

@Account Closed

Ok so if it goes to foreclosure then I'm likely looking at 2-3 months of no payments, foreclosure/legal fees (not sure how much that would be) and probably damage to the property as well.

@Account Closed Maybe I misunderstand the concept, but my thinking is, home owner does a deed in lieu of foreclosure (no foreclosure headaches, I get the house and his debt is forgiven) and I'll give him $1000 if he leaves the place in decent shape when he leaves. I forgot to mention that in the last post...the $1000 is contingent upon the condition of the house at move-out.

@Aaron Mazzrillo

@Christopher Coleman

I guess that's what my "need advice" post really boils down to: everything is fine if it pays out but what is the default procedure like, if it happens? In terms of headache and costs, how does it compare to, say, evicting a non-paying tenant? Texas is a nonjudicial foreclosure state. I would do a deed of trust. I'd have the documents drawn up by the title company - not sure if I need to hire a real estate attorney for a seller financing deal. I also want to add an addendum to the contract that if the borrower gets behind on payments, we can do a deed in lieu of foreclosure and I'll pay him $1000 to walk away from the property.

I just want to be reasonably sure that I'm not missing anything important in this deal. Sounds like there are at least a few BPers who do seller-financed deals.

@Account Closed So far, no lawyer involved. He's already sent over a proposed contract with his terms filled in and it's just a standard sales contract with a seller financing addendum.

If the lack of SSN isn't a problem, then it seems like it should be a decent deal. He's putting almost 50% down.

Hi all,

I bought a duplex for $60k back in May with the goal being to make a cash flow stream, but since the market here is hot this year I've decided to see if I can't sell it. I put it on the market about 3 weeks ago for $89k and have had a couple of inquiries so far. Today I got my first serious offer and I'd like to get y'alls' opinion on it since it's a little unusual.

The prospective buyer is offering $85k which is a good price. He will give me a $40k cash deposit and wants me to owner finance the rest over 4 years at 8% per year. The monthly payments will be $1098/month. The reason he wants owner financing is because the buyer does not have a social security number (foreigner) and so can't get a mortgage, even though he can buy real estate. The buyer wants to close by Nov 22.

I think this deal is OK, but of course there is the risk of default. In Texas it seems like foreclosure is a fairly quick process, so if the buyer defaults I can get them out of the house in about 3 months (I hope) and take possession of the asset. I can also try and get him to sign a Deed in Lieu of Foreclosure...which should hopefully make things smoother.

My real estate agent suggested to put in a clause so that if the borrower defaults they can just turn over the deed to me and if he vacates quickly and leaves the property in good condition I will reward him with $1000. I then get the property back, and of course I keep whatever the borrower has paid ($40k deposit + monthly payments) and I can resell or re-rent the property again.

What do you think? I have no experience with this so any comments or advice is welcome.

In terms of cash flow, this would definitely be better than owning and renting this particular property, and I think there is a sizeable hidden optionality value in the event of default. However, maybe it's not as good as selling outright to someone for $85k. Should I hold out?

Deborah B. - can you message me the details of your lender?

Hi everyone,

I purchased a duplex recently, all cash, $60k. I'd like to refinance so as to get most of my capital out. I'm hitting a bit of a speed bump though:

1. I had trouble getting a RCV policy for this property (in Houston). So, I purchased an ACV policy with a $111k limit from Texas FAIR Plan.
2. The lender I'm working with is telling me they require a RCV policy.
3. I went back to my insurance agent to shop around again. Got only 2 quotes. The better one was for $1900/yr and requires a statement from an inspector stating that the electrical is updated and up to current code. It isn't, so now I'm going to get an estimate from an electrician of what that updating would cost.
4. In the meantime, I'd like to know if anyone knows of any lenders who will accept ACV policies?
5. Or maybe there are other financing alternatives/ideas I should be looking at?

thanks
Phil

Jason Rhine No, I have a normal 25% down payment, I just don't have a lender fee. The lender is my broker's in-house lender and they don't charge lender fees to the broker's clients.