Buying Notes At Closing???
I am in the middle of a deal where I have a note buyer buying my originated note at closing. Essentially a double closing. This seems to easy, Could someone tell me the steps to make sure I havent missed anything? Also what is the average purchase value for this type of quick sale?
Thanks,
Kyle
One other thing, could someone tell me if this is available for commercial, multi family and MH Park type of properties?
Thanks again,
Kyle
Hi Kyle,
less the 6% commission - netting you about $87,420 - and it could take up to 6 mos - 1 year+ to sell - depending upon the house you're selling and your local market conditions.
What you are talking about is called a Simultaneous Closing. It can be simple & quick process, and you can net the same amount - if not more, in cash at closing if you plan/structure the transaction properly.
The discount on the note will be determined by a number of factors including the type of property, terms of the note (what the length of the loan is, down payment, interest rate, balloon or no balloon, etc), the buyer's credit, etc.
If you want to sell your property with owner financing and sell the mortgage simultaneously at closing, it is desirable to have several buyers to choose from, and to work with the person/institution buying the note so that you can structure it in such a way as to give it the highest cash value possible. Generally speaking the lower the LTV, the bigger the down payment, the better the payor's credit, and the shorter the loan - the less the discount will be.
Different investors have different requirements/restrictions on what contracts they'll buy (who they'll lend to) and under what circumstances/terms. Because they're buying the note at a discount (this provides more of a cushion in case of foreclosure and makes for a better investment) you can get buyers financed that normally wouldn't have a prayer of getting a loan from a bank. So when you offer owner financing on your property, you're making your property available to a large percentage of buyers that normally wouldn't be able to purchase a home. Therefore, your property sells quickly (12 days on the average) and at top dollar. Because you're offering owner financing, you can get a premium price for your property, and thus are able to offset the discount that you take on the note - and still come out with a better price than if you sold with an alternative method. The house you're selling might not be the prettiest/most attractive one on the block, but if that's the only one that a particular person can buy because they don't have the good credit necessary for them to buy a house that requires all cash, then they have no choice but to buy yours. All other features of the house become secondary to the financing for that particular buyer. The might like the other house more because it has a bigger back yard, but it doesn't matter because they can't buy the other house. They are forced to "get what they can take". Bad Credit Borrowers can't be Choosers.
When all is said and done, you will have sold your property in about 2 weeks and received a better price than you would have if you sold to an all cash buyer. Cash buyers can "talk you down" on your price because they have that mighty pre-approval notice from their bank. Buyers who require owner financing can't - they forfiet normal price negotiation privledges because no one else will finance them.
By the way, I do buy all first and second trust deeds and mortgages (residential, multifamily, commerical, industrial, etc) and can offer some of the lowest discounts in the industry by creatively structuring/restructuring the notes before I buy them in order to give them the highest cash value. Not only do I buy mortgages at "point of sale", but I also buy pre-existing notes.
So, how much will you net when you sell a property with owner financing and sell the mortgage created for the buyer simultaneously at closing?
I usually require an 11% discount (for unseasoned notes with bad credit payors) - however, unlike what is normally allowed, you can let the buyer eat up 6% of the discount in their mortgage - which leaves you only having to take a 5% "hit". For example, if you have a house for sale for $100,000 (that is worth $100,000), you would sell it for 6% above what it's worth - in this case the selling price would be $106,000. You would net 95% of the FMV/Appraised value ($100,000) in Cash* at closing. In this case you would net $95,000.
*You might not get the whole $95,000 in Cash if the LTV is not in the acceptable range. 90% LTV is the normal max that I allow. This means that if the house is worth $100,000, then the normal max that I can allow the buyer to borrow is $90,000. That means there is $16,000 ($106,000 - $90,000) that the buyer must come up with in their down payment to cover the spread between what I am "loaning" them, and what their purchase price is. Remember you are selling to them for 6% above the FMV/Appraised value so they are upside down to begin with - meaning they have to come up with an extra 6% for their down payment just to get them down to 100% LTV.
What if they only have 10% ($10,600) of the $106,000 purchase price for a down payment? Then you can take back a second to cover the difference. In this case it would be $5,400. So you would walk away from closing with $89,600 in Cash, and a $5,400 second mortgage - for a total of $95,000 + interest on the second you're holding.
Selling a house retail worth $100,000 for $95,000 in two weeks or less?! Not bad, huh? Consider this, if you sold with a Realtor and got full price (very rare as you know) the most you would net is $94,000 (assuming a 6% commission) - not to mention it is very unlikely that they could/would sell it in two weeks or less. The reality would be that the house would sell for around $93,000 (assuming you don't reduce your price a series of times - as Realtors often suggest you do in order to recieve a "quick sale"
Bottom line: If you want to sell for the most amount of money in the shortest period of time, don't change (lower) your price - change the market (offer owner financing - thereby substantially expanding your pool of potential buyers).
Regarding your buyer:
I can work with almost any down payment/credit situation (even no down payment), but your goal is to find a buyer who can put down 10% or more and who just barely got turned down by the bank. Usually you have a number of interested buyers - so you just pick the one that is the most qualified out of the bunch.
You personally don't have to worry about which buyer to choose, or what terms to put in the contract. Just have them fill out a form (standard 1003 w/auth to obtain additional credit info) send it to me, and I will advise you on which buyer to pick, and what terms to put in the contract to give it the highest cash value - and I'll also give you a quote on how much you'll recieve for the mortgage at closing (and how much of that amount will be in cash/or taken back in a second mortgage). I can give you a quote in 3 days, and can close in 2 weeks once I have all necessary/pertinent information.
Nothing is final until you are satisfied with the price you will recieve for the mortgage, and the buyer is happy with the terms of the mortgage - in which case you will then you sign a purchase agreement with the buyer and a mortgage purchase agreement with me.
By offering owner financing (and selling the mortgage simultaneously at closing) you are merely "keeping your options open" - you can sell to an all cash buyer, or a buyer who needs/requires owner/creative financing. You are one of the 15% of houses on the market (on average) that don't require all cash - therefore your house is available to at least 50% more of the buyers in your market (on average) - which in the end will produce a quick sale, and at top dollar - all cash (or at least mostly).
If you would like to discuss Simultaneous Closings further, please contact me and I will be happy to go over everything with you and walk you through the process.
I look forward to talking with you soon,
James
Hey james,
What are your parameters for seasoning of my ownership?
What rate are you going to "suggest" I charge the buyer?
Hi Neill7,
I do not have any title seasoning requirements - unlike most loan programs through banks. This makes Simultaneous Closings the perfect for financing your flips.
The interest rate your buyer will receive will reflect their credit. They will get a market/competitive interest rate based on their credit profile, the use of the property, and details of the transaction.
James
James,
It your program available in Ohio. If so I will email you for further details.
Thanks,
Chris
Hi Chris,
Yes, it's available nationwide.
I look forward to hearing from you,
James
[quote]
less the 6% commission - netting you about $87,420 - and it could take up to 6 mos - 1 year+ to sell - depending upon the house you're selling and your local market conditions.
On 2003-07-29 00:10, JMF wrote:
Hi Kyle,
What you are talking about is called a Simultaneous Closing. It can be simple & quick process, and you can net the same amount - if not more, in cash at closing if you plan/structure the transaction properly.
The discount on the note will be determined by a number of factors including the type of property, terms of the note (what the length of the loan is, down payment, interest rate, balloon or no balloon, etc), the buyer's credit, etc.
If you want to sell your property with owner financing and sell the mortgage simultaneously at closing, it is desirable to have several buyers to choose from, and to work with the person/institution buying the note so that you can structure it in such a way as to give it the highest cash value possible. Generally speaking the lower the LTV, the bigger the down payment, the better the payor's credit, and the shorter the loan - the less the discount will be.
Different investors have different requirements/restrictions on what contracts they'll buy (who they'll lend to) and under what circumstances/terms. Because they're buying the note at a discount (this provides more of a cushion in case of foreclosure and makes for a better investment) you can get buyers financed that normally wouldn't have a prayer of getting a loan from a bank. So when you offer owner financing on your property, you're making your property available to a large percentage of buyers that normally wouldn't be able to purchase a home. Therefore, your property sells quickly (12 days on the average) and at top dollar. Because you're offering owner financing, you can get a premium price for your property, and thus are able to offset the discount that you take on the note - and still come out with a better price than if you sold with an alternative method. The house you're selling might not be the prettiest/most attractive one on the block, but if that's the only one that a particular person can buy because they don't have the good credit necessary for them to buy a house that requires all cash, then they have no choice but to buy yours. All other features of the house become secondary to the financing for that particular buyer. The might like the other house more because it has a bigger back yard, but it doesn't matter because they can't buy the other house. They are forced to "get what they can take". Bad Credit Borrowers can't be Choosers.
When all is said and done, you will have sold your property in about 2 weeks and received a better price than you would have if you sold to an all cash buyer. Cash buyers can "talk you down" on your price because they have that mighty pre-approval notice from their bank. Buyers who require owner financing can't - they forfiet normal price negotiation privledges because no one else will finance them.
By the way, I do buy all first and second trust deeds and mortgages (residential, multifamily, commerical, industrial, etc) and can offer some of the lowest discounts in the industry by creatively structuring/restructuring the notes before I buy them in order to give them the highest cash value. Not only do I buy mortgages at "point of sale", but I also buy pre-existing notes.
So, how much will you net when you sell a property with owner financing and sell the mortgage created for the buyer simultaneously at closing?
I usually require an 11% discount (for unseasoned notes with bad credit payors) - however, unlike what is normally allowed, you can let the buyer eat up 6% of the discount in their mortgage - which leaves you only having to take a 5% "hit". For example, if you have a house for sale for $100,000 (that is worth $100,000), you would sell it for 6% above what it's worth - in this case the selling price would be $106,000. You would net 95% of the FMV/Appraised value ($100,000) in Cash* at closing. In this case you would net $95,000.
*You might not get the whole $95,000 in Cash if the LTV is not in the acceptable range. 90% LTV is the normal max that I allow. This means that if the house is worth $100,000, then the normal max that I can allow the buyer to borrow is $90,000. That means there is $16,000 ($106,000 - $90,000) that the buyer must come up with in their down payment to cover the spread between what I am "loaning" them, and what their purchase price is. Remember you are selling to them for 6% above the FMV/Appraised value so they are upside down to begin with - meaning they have to come up with an extra 6% for their down payment just to get them down to 100% LTV.
What if they only have 10% ($10,600) of the $106,000 purchase price for a down payment? Then you can take back a second to cover the difference. In this case it would be $5,400. So you would walk away from closing with $89,600 in Cash, and a $5,400 second mortgage - for a total of $95,000 + interest on the second you're holding.
Selling a house retail worth $100,000 for $95,000 in two weeks or less?! Not bad, huh? Consider this, if you sold with a Realtor and got full price (very rare as you know) the most you would net is $94,000 (assuming a 6% commission) - not to mention it is very unlikely that they could/would sell it in two weeks or less. The reality would be that the house would sell for around $93,000 (assuming you don't reduce your price a series of times - as Realtors often suggest you do in order to recieve a "quick sale"
Bottom line: If you want to sell for the most amount of money in the shortest period of time, don't change (lower) your price - change the market (offer owner financing - thereby substantially expanding your pool of potential buyers).
Regarding your buyer:
I can work with almost any down payment/credit situation (even no down payment), but your goal is to find a buyer who can put down 10% or more and who just barely got turned down by the bank. Usually you have a number of interested buyers - so you just pick the one that is the most qualified out of the bunch.
You personally don't have to worry about which buyer to choose, or what terms to put in the contract. Just have them fill out a form (standard 1003 w/auth to obtain additional credit info) send it to me, and I will advise you on which buyer to pick, and what terms to put in the contract to give it the highest cash value - and I'll also give you a quote on how much you'll recieve for the mortgage at closing (and how much of that amount will be in cash/or taken back in a second mortgage). I can give you a quote in 3 days, and can close in 2 weeks once I have all necessary/pertinent information.
Nothing is final until you are satisfied with the price you will recieve for the mortgage, and the buyer is happy with the terms of the mortgage - in which case you will then you sign a purchase agreement with the buyer and a mortgage purchase agreement with me.
By offering owner financing (and selling the mortgage simultaneously at closing) you are merely "keeping your options open" - you can sell to an all cash buyer, or a buyer who needs/requires owner/creative financing. You are one of the 15% of houses on the market (on average) that don't require all cash - therefore your house is available to at least 50% more of the buyers in your market (on average) - which in the end will produce a quick sale, and at top dollar - all cash (or at least mostly).
If you would like to discuss Simultaneous Closings further, please contact me and I will be happy to go over everything with you and walk you through the process.
I look forward to talking with you soon,
James <IMG SRC="images/forum/smilies/icon_smile.gif">
[/quote]
Thanks,
I will be in contact with you within the next day or two.
Kyle