I Need Clarification On CFD Downpayment & Refi
Is the downpayment subtracted from the final sell price or not? I've read some many conflicting opinions.
Also, if selling a house for say 119k, should it appraise for more than 119k so buyer can refi or does it need to appraise for at least 119k when the time comes to refi? The refi part is confusing me a bit.
quinn
No one has any insightful replies to help me?
quinn
The downpayment is subtracted from the sale price. The house should be worth the sale price when the contract is fulfilled, and they cash you out.
Jeff
Although I usually agree 100% with Jeff (great poster with great info), I'm kind of split with this one.
On the appraisal part, I agree: you should not increase the price beyond what you think your buyers can refinance for or beyond the market appreciation rate. I mean, why would you anyway, unless you're greedy? Think about it: if your buyer can't refinance because the house doesn't appraise well enough for their refi, what are you going to do? You still have the obligation to pay the orig. mortgage payment: you either extend the contract for deed or lease/option or you have to kick out your buyer and find a new one--not impossible, but a messier deal.
On the downpayment part, I too have seen many conflicting posts on this. Here's how I've boiled it down: most CFD buyers are credit challenged (otherwise they'd have gotten conv. financing right?). Their main concerns will be the amount of the downpayment and whether they can afford the monthly, NOT the final sale price. So here's how I'd structure a deal:
$100K FMV now
$90K original mortgage
$110K future value (5% apprec. x 2 yrs)
$10 K "down" (I'm starting to consider this a "premium" for purchasing with bad credit to get away from the "downpayment" term, which I agree, sounds like it should come off the final sale price)
$120K sale price
$110K refinance after 2 years
~$90K payout of orig. mtg.
Profit centers (not incl. monthly pack):
$10K down now (to defer your costs of purchase, clean up, marketing, payment for equity, etc.)
~$20K in 2 years (less costs of selling)
As mentioned above, as long as you haven't priced it beyond refinancing, everyone wins here:
- Orig seller out & credit remains clear
- Buyer gets a house without credit check, tax benefits, 2 years steady payments to help clean up credit
- You get profit for putting it all together.
Andy
[ Edited by arytkatz on Date 06/28/2004 ][ Edited by arytkatz on Date 06/28/2004 ]
You can agree anything you want with the seller on a CFD. Assuming that you really do want to eventually sell the place then think about what will happen at the end. Any payments, down payments, price adjustments, etc should be structured so that a lender will like the deal when it comes time for new financing.
If you figure you can do multiple deals over an investing career, there is no need to gouge the buyer. Work out something that is fair and is easy to understand. Build a reputation of being fair and collect referrals (more sellers and/or buyers).
John
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