Archive for December, 2008
December 7th, 2008 categories: Seller Financing
Six billion people … and YOU!
How do you set yourself apart?
As special as you are, Baby, you don’t have to! Even though we’re all connected, you’re still quite unique in your own way. No one has exactly your set of talents, skills, traits, and strengths. I’m certain that 99.9% of the world’s population would gladly trade places with you … regardless of what you consider to be troubles and problems in your life. Try talking about your drama in Afghanistan or Ethiopia … it just won’t fly there.
And it shouldn’t get off the ground here, either. We just got through the Thanksgiving Holiday … did you even think of all that you have to be grateful for? Trust me when I say this to you – There’s no one more special than you … more capable … or more able to BE the “you” that only you can be. Take pride in knowing that you are it!
Take stock in what it is that makes you who you are. Work on that which you consider to be your strengths, and ignore your weaknesses … they’ll wither and die on the vine of your un-attention. Discover and uncover all of that which you’ve been hiding (or saving?) all these years … the stuff that if released, will change your life forever.
It’s there. Know it. Allow it.
“We can only be said to be alive in those moments when our hearts are conscious of our treasures.” – Thornton Wilder
Your gifts are infinite … open them!
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December 6th, 2008 categories: Seller Financing
This seller is representative of many sellers of smaller and mid-sized commercial buildings these days:
I read with great interest the 10/3/08, Investor’s Business Daily article that featured your information on seller financing.
I personally own a lake front condo office in Stockton. I have it clear of any loans and lost 3 buyers because of huge finance loan fees quoted, so am now thinking quite seriously about your procedure with me, as Seller, carrying the loan.
Do you offer, for a fee, to setup the carry back situation including how the payments are made and to whom, etc.?
Tim’s buyers were scared off by the bank fees, but many can’t get decent loans at all. Or maybe they can get a 65% LTV at 11%, but not many buyers have a 35% down payment at the prices that most sellers are wanting for their properties today.
When Tim gets a chance to call me back, here’s a few basic guidelines that we’ll talk about when structuring a seller carry back transaction:
- Down payment - for commercial property, the standard is to try and get 25% down. Sometimes less is OK if there are other strengths in the deal
- Interest rate – sellers should shoot for 8, 9 or 10%, but to be competitive and support maximum price, sometimes sellers are carrying at 6 & 7%
- Term – amortize over the shortest possible time, over 15 or 20 years if the buyer can do it, and put in a 5-7 year balloon. If they can’t make the balloon payment at that point, at least you’ll have the opportunity of renegotiating increasingly favorable terms
- Credit score – you want a buyer with a decent credit score . . . not just to make your own investment more secure, but to have a reasonable chance of selling the note down the road
- Capital gains - Tim & I are going to talk about his strategies for deferring capital gains in concert with advice from his own CPA. Should he put in a stiff prepayment penalty? Should he put the property in a land trust for a 1031 exchange option down the road?
- Exit strategy – will he want to sell all or part of the note sooner? Later? How we structure the transaction will reflect his ultimate needs and objectives
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Jumbo Loans Still Hard to Get – Seller Financing Increasingly Popular for Closing Luxury High End Properties
Recently, LA Times writer Peter Hong published an article about the new interest mortgage interest rates:
“. . . Jumbo mortgages, those over $729,000, carry interest rates just under 8% and remain very difficult to obtain, Lazerson said. Because Fannie and Freddie can’t buy jumbo loans, the rates on them are unlikely to be affected by the Fed’s plan.”
The jumbo loans needed to purchase luxury residential properties, as well as the mid-sized commercial properties, are going to continue to be very difficult to get. And it’s showing. The high end properties just aren’t moving, and they won’t unless we can bridge the financing gap.
I know a lot of agents that will say that the higher end clients don’t need help with financing . . . they have great credit and income, or maybe they’re all-cash buyers. I don’t doubt that that’s true for some, but it’s definitely not the case for all.
Seller financing is going to be an increasingly important tool for closing the more expensive properties. When there is existing financing that needs to be left in place, we are having great success using the Equity Holding Trust Transfer System to protect both buyers and sellers.
Incidentally, this strategy can also create the possibility for complete deferral of capital gains on luxury residences. The home owner’s exemption is $500,000 at most, so anything over that is subject to federal capital gains (that may very well increase to 20%).
If a property seller agrees to leave existing financing in place for a buyer and puts the property in a land trust, their primary residence can become classified as an investment after 12-18 months, and they can elect to do a 1031 exchange into another property once the trust is terminated (has to be completed within 3 years).
If you have a property over $700,000 that is not selling, you should really give me a call before you consider taking it off the market or doing a drastic price reduction. Offering terms will help support your price point.
Agents who understand alternative exit strategies will find themselves closing more transactions than their counterparts.
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