Real Estate Agent - Creating Notes
I had read in 'Real Estate Money Machine' by Wade Cook about something his real estate agent did.
The book's info is outdated, but there's some good ideas in it (as in any book, no matter how much of a fraud the author is).
Anyways, I'm a real estate agent and I'm thinking of doing what his did. Basically, instead of taking his commission up front, he accepted it as a note over an agreed amount of time, with interest of course. But, it would enable my clients to purchase a house easier because they wouldn't need as much at closing. Also, it would create cash flow for me, as opposed to the up months and down months most agents experience now and then. I would think an investor would love to hook up with an agent like that... Any opinion would be appreciated.
Oh, and I couldn't find a more appropriate place to post this. If it's in the wrong forum, can a moderator move it to the correct one please?
Thanks
-M
Mike,
That's a cool proposition. I think I will propose that to my agent.
But I also think it depends upon the price of the home. I CA where 3/2 houses run 300K-600K just about everywhere, REA are starting to lower their commission rates as 3.5% on 500K houses is making a lot of sellers look elsewhere.
I would think that depending upon the price of the home, there would be a lot of investors willing to take out a short term commission loan. On the other hand, some investors don't use agents at all so you have to factor that in too.
HTH,
Robert
[addsig]
My realtor does exactly that: we sign a note for his commission, which is already reduced as it is, which allows up to have more operating capital to fix up the property.
As far as using this to help your homebuyers - it will be tough to do and stay in guidelines with most financing programs out there, unless you do it outside of the transaction.
Hope this helps.
Vasiliy
I started using this in the early 80’s. I cried poor (I really was at that time) to the Real Estate Agents/Brokers. They would use their commissions to supplement the Seller’s carry back to get my 20% down.
I am not judging Real Estate Agents/Brokers but of the approximately 20 transactions done this way, I was able to discount 10 at 25 – 50 cents on the dollar.
I have come back into the SFH market for the last 9 months. Concept still works, Agents/Brokers are too greedy. They do not want to help. There are too many Buyers over-paying.
Taiyo
Well, since I work mostly with investment property, I'd reckon that my customers would jump on the idea. At least, I would... but I don't need an agent, as I am one.
Thanks for the input.
-M
The idea will certainly work.
The problem is most realtors do not have the cash flow to wait for payment. They might like a monthly payment but they generally have already budgeted in the full amount once they get the earnest money signed (or before).
Agents who are that creative normally are creative in other ways and are definitely great to work with.
One question is if the note would be secured on the property or is it unsecured. If you are going to secure it then you might need to record after the close as the lender might not like seeing a 2nd showing up quickly after the deal was done. That or secure it on a different property so there is no issue at all.
If you do such a deal and the agent then wants to sell the note let me know.
John
[addsig]
"The ones I did were all unsecured"
Taiyo[ Edited by JohnLocke on Date 05/25/2004 ]
A deal i like, is to trade the 6% cash commission for the seller's 10% carryback. IThis is a good way to make a deal when you have a buyer who can qualify, but has no Dowmpayment.
80% 1st
10% 2nd carryback
10% 3rd carryback (Immediately sold for the 6% cash commission)
Buye gets in for nothing, Seller is carrying a 10% 2nd with you holding the 10% 3rd. Seller has taken a 40% discount on an unseasoned 3rd with no protective equity above it. (Not unreasonable!) You made a deal you wouldn't have.
I am a Mortgage Broker and I have seen this type of senerio used may times to acquire a property. What ypu people need to to know is that your position is at risk. Once they acquire the property many, not not all, buyers find ways to pull out equity, making any unrecorded loans nearly worthless. Many individuals with no cash in a property will walk away if there is any trouble in his or her life or upon losing a job, again making your note worthless. My advise to be very careful, you may end up getting nothing :-?
Neilcathy67,
If I put the deal together, I feel responsible to the seller. (That he not get burned) All my Notes are secured w/DTs. If Buyer goes bad, I'll forclose & get a highly leveraged rental for a minimal cash outlay.