Owner finance with amortization, can we???
I love the little trick that bank has going with the amortize schedule. I have been thinking about doing some owner finance, but I want the good money like the bank gets. Can anyone shine some light on how I might go about doing this???
It has to be one of the best legal scams going and I want to try it. I cry when I look at my balance owed on my personal home...and I've been living in it for 6 years. The balance is almost the same as when I bought it. I can't even call a landlord when crap breaks, I have to fix it. Great scam!!! Sign me up, I want in on this one.
How do we do this?
gtrzndrums 
I guess nobody wanted to share on this subject, so I did a little dig in myself and I will share it with you.
I spoke with my title company today and found out YOU CAN amortize an owner finance. All you have to do is let the title company know you want to do this and the rate you are charging. The title company has the charts to do this for you. You do not have to be a bank to amortize principal and interest.
The only question I have left is, how high can your interst rate be? I'm sure the law has a max on this. The title company couldn't answer that one.
gtrzndrums
gtrzndrums
First of all owner financing is not a scam or a bank using a amortize schedule.
Son how else would one know the terms????????????????????????????????
One can sell most anything by financing by way of an amortize schedule.
Each state law has it's own set of max interest rates. I would suggest checking with your own state laws by way of your state page on the net.
The max rate is not the key to profit, but buying correctly and making a deal that is a WIN-WIN for both the seller and the buyer.
Gtrzndrums, this is not news to REI's, many of us have been doing this for years.
[addsig]
Quote:
On 2003-01-31 22:30, JohnMichael wrote:
gtrzndrums
First of all owner financing is not a scam or a bank using a amortize schedule.
Son how else would one know the terms????????????????????????????????
One can sell most anything by financing by way of an amortize schedule.
Each state law has it's own set of max interest rates. I would suggest checking with your own state laws by way of your state page on the net.
The max rate is not the key to profit, but buying correctly and making a deal that is a WIN-WIN for both the seller and the buyer.
Gtrzndrums, this is not news to REI's, many of us have been doing this for years.
Well DAD -
I think you missed my whole reason I posted this topic.
1)I am on this site to grow and learn from others. i.e. If I don't know something, I ask. If I learn something I share.
2) Us younger folks have a different way of expressing ourselves. i.e. when I said scam, the word legal was in front of it. I am not a shady person or practice black market tactics. I was simply expressing an opportunity that I saw to make money. You must have missed my very simple humor of calling it a scam, DAD.
3)In reference to your quote "First of all owner financing is not a scam or a bank using a amortize schedule."
Nobody said owner finance was a bank using an amotize schedule. The whole point of the entire post is that BANKS use the amortize schedules to sell property and I would like to do this also!
4)Son how else would one know the terms????????????????????????????????
Well, that was what I am trying to find out. Believe me, many on this site could not give you a 1.2.3 on how to put this together. That is why I am posting...TO LEARN & SHARE.
5)"Each state law has it's own set of max interest rates. I would suggest checking with your own state laws by way of your state page on the net."
You sound like you have done a million of these and you are from the same state as me, would it be to difficult to just give the answer???????????????????????????????????????????? I mean from the quote, "Gtrzndrums, this is not news to REI's, many of us have been doing this for years." I would think you would no this in your sleep.
Summary:
Don't give TONE to people who are working hard trying to learn & share. Understand that every question is a good question, whether you already know the answer or not. If you know it share it kindly.
When nobody answered my post, I did take the time to find out what I could and shared it with everyone. So, I do feel I am trying to help others while I learn. So do me a favor as a CONTRIBUTING member... show a little LOVE.
gtrzndrums
gtrzndrums
Vary gutsy and I love it.
You will go far in REI if you stay focused and avoid discouragement.
Now that you’re my son can I use you as a tax deduction?
[addsig]
Once you understand that compound interest can work for you or against you you are on your way to a secure finacial future.
How many people do you know shop for things by looking at the montly payment? Most of them live from paycheck to paycheck. They are working to pay someone else so that they can have toys today.
It is better to have people working for you so that you can buy your toys with cash.
gtrzndrums:
Charging interest can be better than owning real estate, sometimes. For a good book on the principals of wealth and compounding, read Napolean Hill's book "Think and Grow Rich." The book was written many, many years ago, but the principles in it still hold true today.
However, before you think that amortizing seller financing is a great "legal scam" you have to understand the risk you take. What risk? The interest rate one charges is comprised of a risk free rate of return (such as Treasury Bonds) plus a market risk premium. Market risk premium is comprised of the credit risk of the borrower, the loan-to-value of the property, the borrower's cash risk in the property, and the likelihood that the borrower will default. In addition, there is interest rate risk. For example, if you charge 6% interest on $100,000 seller carry-back note that is a 30-year fully amortizable loan and three years later the interest rates go up to 12%, your $100,000 note is only worth $58,287 because that is what an investor would require since he could invest elsewhere and get his 12% return.
However, the 6% return is not your real (effective) return. Rather, you need to consider the after-tax return on the investment. Assuming you have owned the property for more than 1 year, at a federal capital gains tax rate of 20% and assume your state charges about 7% state taxes (so that the effective tax rate is about 25% since you get a deduction on your return for the state taxes you pay, that is why the effective rate is not 27%), your effective rate of return is not 6% that is being charged on the face amount of the note, but rather only 4.5%. If you consider that inflation is about 2.3% per year, your real growth value is only about 2.2%. The note doesn't sound so good now does it?
Notes and amortization does have its benefits, my rule of thumb is if real estate appreciation rates are increasing twice as great as what 30-year interest rates currently are, you are better off holding onto the real estate because with the tax benefits of owning the real estate and not having to pay capital gains taxes (until you sell it), the rate of return on your investment from rental income and appreciation will many times be better.
That is not to say that investing in notes cannot be profitable. I will often buy real estate notes, but I will generally not create them from the sale of my property. Why? If I can buy a real estate note at a discount, I can usually get, even today, 12%-15% return on my investment. Then I will try to entice the owner of the property to pay the note off early by refinancing. Many times I will pay their closing costs to do this. Why? My yield or my rate of return skyrockets from 12%-15% to over 100%. In that case, my returns are usually better than most real estate deals I can find and the note is a lot less headaches.
So, my own view is that a 30-year amortization on a note is not a good deal for a seller, but if you do take the note, ensure that there is a balloon payment in about 5 years so that you do not have as much interest rate risk (i.e., risk that the interest rates will increase and decrease the value of your note). This is a real issue today when the interest rates are very low.
I hope that helps you and gives you a different perspective on amortization and seller financing.
Taxjunkie