All Forum Posts by: Patrick Sears

Hello,

Anyone have any experience with the IRS re: a fix and flip into seller financed note carrying business model?  I know that the occasional selling of a personal residence or long-term rental qualifies for installment sales, but how about the repeated selling of properties to buyers via seller carry notes as a business model?

Thoughts? 

Thanks for the reply!

I've been doing some reading of recent news articles about the Tri-City area.  The consensus seems to be that Petersburg in particular has a glut of vacancies and is continuing to lose population.  And the tax base is in serious trouble.

My thinking was that if Detroit can be starting to turn around, than Petersburg certainly should be able to as well.  Now, I'm not so sure...

Besides Ft. Lee, there really isn't any reason to live in that area, except for maybe people looking to commute to Chesterfield for work.

Hopewell seems to be trying to turn it around, and the homes seem to be in a little better shape.  Plus I've read they are putting money into the downtown and riverfront areas.

Think I'm going to stay away from the sub $20k Petersburg junk and maybe focus more on the $40-$60k housing stock in the periphery.

Now to decide between buy and hold or just selling on terms and creating paper...

Yeah, I have a property by McGuire Hosp in Area 50 in Richmond. What people are asking for total fixers is ridiculous.  1% rule for investing in the 'hood?  NOPE!

Hello,

Wondering if anyone in the Central Virginia area was investing in inner-city Petersburg or Hopewell?  Specifically, doing Section 8 in the lower-priced, rougher areas?  I currently have rentals in Richmond (have done Section 8 there inner-ciry), but was thinking of trying out Petersburg.  Richmond is way overheated right now.

Tossing around either Section 8 or maybe doing fix and flip to other investors and I carry the paper.

Thoughts?

Thanks for the reply. Yes,  part of my business model will be for me to become an MLO myself so I can originated many different types of loans including land home deals and stick Built Homes as well.

Hello,

Been thinking about originating notes on mobile homes.  What do you veteran MH investors out there think of doing park (chattel) homes vs land and home deals?  How about when I go to sell front-end partials on these deals to get my money back out-how would you value/discount the notes on park homes vs land-home vs lower income stick-built homes?  What yields would you be looking for on these various types of partial notes, assuming all else (down pmt, buyer credit, etc) was the same?

Thanks!

Yes, what she was doing was taking half the loan balance, keeping the payments the same, changing the number of payments to half, and then solving for the interest rate.

What I needed to do (and I already knew this!) was to enter what I think is a fair return for my note buyer in the interest column, and then solve for the number of months.  

Pity the fool who doesn't know the math of real estate!

Ok, I think I just figured out what is going on here.  I watched a Tracy Z video where she illustrated the "1/2 the note for 1/2 the payments" thing.  Curious, the smaller the amount borrowed (while keeping the note payment the same) the higher your yield goes.  "1/4 of the note for a 1/4 of the payments" doubles that (30 of 120).  I experimented, and I found that after the note buyer starts buying greater than 50% of the note, the return starts to approach the face value of the note's return (in this case, I used 10% int rate).  At "3/4 of the note for 3/4 of the payments" (90 of 120) the return to the note buyer is 13.31%

Fun with notes!

Hello,

I had a "math" question of the yield created by selling a partial on an originated note. 

My plan to get involved in notes is to buy for cash a SFH, rehab and then sell on terms to an end buyer (instead of holding to rent). Then I planned on getting my cash back out of the deal by selling a front-end partial at a max of 70% LTV to the note buyer (or whatever the feel comfortable with), which will leave me with just a little left in the deal. This would probably be for a 180-240 mo term. The general terms would be 10% down by home buyer, 600+ credit score, 9-10% interest rate to home buyer, and legally originated by a registered MLO.

My question is this: From my reading of posts and other research, the current yield on something like this a note buyer should expect is around 9-14% or therabouts.  I probably wouldn't sell for over 12%.  However, I notice that when I plug in the numbers the note BUYER ends up with some really high yields, even with no discount off the face value of the note.   For example, if I sold 1/2 the balance of the note, the yield DOUBLES to ~20% on a 10% face rate note for the note buyer (unless of course I'm the note buyer, then it's okay :-)

Pardon my french, but I will be a son of a b*tch before I pay a totally passive note investor that rate of return in this low interest rate enviroment. Especially for a front-ended note with a conservative LTV.

That said, how would I DECREASE the note buyer's return to a more reasonable 12% or so?  Could I sell the note at a PREMIUM to the face value?  Or instead of front-loading the payout, just do a 50/50 partial for the entire term of the note, which would lower the rate of return automatically to the note buyer?

Any other thoughts on this topic?

Thanks!

Hello,

For those of you who are fix and flipping on terms and creating notes to sell/originating loans, which business entity have you chosen and why? I'm guessing it will be a choice between LLC & S-Corp (or maybe LLC taxed as S-Corp).

Thoughts?

Thanks for the replies.  So far it sounds like I might just keep my old 2007 Quickbooks desktop, or maybe find a 2012-2015 copy on Amazon for cheaper.  From the reviews the 2018-2019 desktops are garbage; at $60/mo in perpetuity the online version is way too much money. 

How are you guys entering your notes in Quickbooks?