Did I Blow It?
I talked to the guy with the duplex. He seemed like a motivated seller but our conversation today went sour real quick. Here's the synopsis.
Seller (out of state) had a duplex he wanted to get rid of b/c being a landlord was not his thing. Wanted 40K for it (appraised at 44k). Owed 23K @ 5.75%. Wanted 10% down. I offered 30K and 1K down. He then proceeds to tell me that my offer won't do b/c he as 31K invested in it. So I said, well, let me do some more number crunching and get back with you. He also let me know he had some cash offers on the table but had made no decision. Well, before getting off the phone, seller proposes the following: 1K down. He holds a note for 39K @ 7% for 15years. Seemed like a good deal. I said I would discuss it with my partner and get back to him.
Anyway, moving on to today. I called him to let him know that a friend of mine would be out to look at the property for me since I lived out of state, and after his assessment of the place I would put an offer in writing under the terms he suggested. I then informed him that I would like some kind of credit towards the purchase so that we could 1) guarantee he was paying the note on the principal mortgage, and 2) 3 years down the line if we wanted to pay cash we wouldn't be paying 39K after paying for 3 years. I offerred him $430 with $300 going towards the purchase of the house. By my calcs, he stood to make $130 profit/month.
He immediately became flustered and said Lease Option of any kind was out of the question and that he was confused what we were asking of him. He said for us not to worry, he was going to pay his mortgage. After two minutes he then cancelled the deal all together and said he would just go with a cash offer.
My question is whether I was wrong or confused in my letting him know upfront that even though he didn't want to do a lease/option and he would carry a note that we were wanted a guarantee that he would pay the note (23K) and that we would prefer some kind of credit towards the purchase of the house in case we wanted to cash in later down the line. I know owner financing is a good deal, but after reading the benefits of lease/option and Seller To deals, I'm a little less inclined to be tied to a person for 15years. Should I rethink this idea?
Can anyone answer? Thanks.
Congrats, you've got it...lots of risks buying on wrap-notes or lease-options...if at all feasible, get indefeasible title and deed to you via third party financing...exceptions will occur...I bought a house once from an estate, executing a First back to seller and later refi'd as rates dropped...with current rates so low, have exp. very little reason to not obtain new financing.
In a way, yes, you blew it, depending on the actual numbers and details of the deal
He offered you seller financing. In a financed deal, you have some of your monthly go to principle and the rest to interest, so every month, you are paying off principle. IF he was actually transferring title, he offered you a fair deal. By asking for a L/O, you look naive and inexperienced.
It's an honest worry about the underlying payment. The best way to handle this is thru a neutral third party. The third party would collect and pay all funds associated with the property.
BTW, doesn't sound like a motivated seller to me. Sounds like a more experienced investor that is just trying to make some money selling his investment.
Roger
Thanks for the info. After consideration, I more than likely blew it by questioning his integrity. I'm chalking it up as a learning experience (and trying not to think of the lost money!)