Archive for the 'Seller Financing' Category
If You’re Thinking of Selling Any Time in the Next 10 Years, Don’t Wait Another Minute
August 31st, 2010 categories: Land Trusts, Real Estate News, Seller Financing
Recent email from someone looking for a refinance (from a commercial hedge fund… Chase won’t refinance for them… they just want their $1,157,000 balloon payment):
“Dawn,
You have us thinking. We would like to sell anytime between now and 5 years. What we would like out of a transaction is $100,000 a year for 20 years. Is that doable? Otherwise, it will pay to keep the building.
Meanwhile we are all proceeding to have a loan in place by 10/15. Loan is uppermost in our mind, but thought I’d give you something to think about–for us.”
Yes, great to be thinking… Just off the top of my head…
Installment Sale
- Purchase price: $3,500,000
- Buyer comes in with $1,500,000 down payment (kinda stiff - pays off existing financing and closing costs)
- You carry a first note and deed of trust for: $2,000,000
- At 5% amortized over 240 (20 years)
- Monthly P&I payment from buyer: $13,199.12 (x12 = $158,389.37/year to you)
- This also defers capital gains, but you have to deal with depreciation recapture.
- Buyer pays all taxes and insurance and maintenance
Installment Sale
- Purchase price: $3,500,000
- Buyer comes in with $875,000 down payment (25% is reasonable, more buyers can do this)
- Buyer gets a bank loan for $1,000,000
- Between DP and bank loan you pay off underlying financing and put $375,000 in the bank (for capital gains, or money to make real estate loans with at 9-12% safe returns)
- You carry a second note and deed of trust for as much as the bank will let you: $1,625,000 (alternatively… have the buyer get a private money loan for just enough to get rid of the underlying bank financing… another $600,000 or so, instead of a $1,000,000 bank loan, then you don’t have to worry about the bank not letting you record a 2nd)
- At 5% amortized over 240 (20 years)
- Monthly P&I payment from buyer: $10,724.28 (x12 = $128,691.37/year to you)
- This also defers some capital gains, but you have to deal with depreciation recapture.
- Buyer pays all taxes and insurance and maintenance
Use a Title Holding Trust instead
- You place the property in a title holding (land) trust
- Mutually Agreed Value: $3,500,000
- Buyer comes in with $1,500,000 initial contribution (kinda stiff - pays off existing financing and closing costs)
- You become co-beneficiaries in the trust
- Buyer leases property from trustee
- Monthly lease payment from buyer: $13,199.12 (x12 = $158,389.37/year to you)
- This also defers 100% capital gains and depreciation recapture until trust is terminated (1-20 years) at which point you can potentially do a 1031 exchange if you want to
- Buyer pays all taxes and insurance and maintenance
Sell to conventional buyer, cash or cash-to-new-loan and use Deferred Sales Trust
- Purchase price: $3,500,000
- You pay off underlying financing and put $2,000,000 in a DST (low risk portfolio you help determine)
- Create payout equivalent to 4% amortized over 240 (20 years)
- Monthly payout from trust: $12,119.61 (x12 = $145,435.28/year to you)
- This defers capital gains like an installment sale, but you have to deal with depreciation recapture.
Of course, these numbers are based upon your opinion of value at $3,500,000.
Selling now will get you…
- A simpler life… no management to deal with
- You are buffered against downturns in the market in the next 10 years (very likely)
- You are buffered against major improvements that need to be done, like new roof, etc., new plumbing or electrical… catastrophic events
If you’re thinking of selling any time in the next 10 years,
THE SOONER THE BETTER!!!
Don’t waste another minute. Things are stacking up to get more ‘interesting’, not less. What you need to think about is quality of life, which of course is influenced by monthly cash flow, but also stress level, and how hard you have to work to manage the property, and what you could do with your time if you weren’t managing. Wanting to travel more? Visit family? Take up basket weaving?
If you decide to sell, I would recommend that I co-list the property with an expert in apartment buildings (I know some), and I have the expertise in owner financing strategies and private money solutions that most agents lack. If I am not co-listing the property I will need to charge you an up front deposit for consulting that will be refunded to you at close of escrow when we have the buyer bring in my fees as part of their closing costs.
Anyhow, we’ll talk soon!
Dawn
P.S. Ask questions, make comments and connect on my Facebook Page!
P.P.S. My real live book is available at last: “Seller Financing on Steroids: Pumping Paper for Power, Peace and Profits“ Book purchase includes a complimentary 30 minute consultation, so save the receipt!
| Discussion: No Comments »
Owner Financing Scam That Wipes Out Your Seller Carry Note
July 29th, 2010 categories: Seller Financing, Selling Your Note
The perfect set up:
- Seller owns $500,000 property free and clear (or only has a small loan)
- Buyer offers seller full asking price if they’ll accept $300,000 now and
- Carry a $200,000 note
I know… you’re thinking,
“So what’s the problem??? That’s a 60% down payment for cryin’ out loud!!! I’d take that in a heart beat! There’s $300,000 of protective equity on this deal! I HOPE they default so I can take the property back and sell it again for full value!”
Not so fast…
The $300,000 that the Seller received at close of escrow was a loan from the Buyer’s Private Money Buddy, and the seller carry back loan was in 2nd position.
THERE WAS NO DOWN PAYMENT!!!
Zip, zero, nada. No “skin in the game”. And there’s no problem if the buyer is 100% ethical and lives by the Golden Rule or the Golden Fleece or Fibonacci’s Golden Mean… but if the Buyer only lives for GOLD, here’s what they do…
They tell their Private Money Buddy,
“Hey Dude, I’m not going to pay you according to the terms of the note, so… you might as well foreclose on me, right?” (wink wink, nudge nudge)
The sellers/note holders (holding that 2nd lien note), if they’re not sophisticated and don’t take precise and definitive action, they’ll get wiped out at the Trustee Sale, and the Buyer and his Buddy get the property for a total investment of $300,000 plus foreclosure costs.
Sweet, huh? I thought you’d like it.
So how to avoid it:
- Use a professional note consultant to engineer your transaction (or an attorney or accountant or someone you trust who understands how real estate and notes work)
- Use a highly professional and diversified note servicing company… they’ll help you keep on top of things and advise you on how to proceed if anything goes wonky
- If you’re thinking of taking a 0% down deal from a buyer… have your head checked
Owner financing is an effective and powerful tool when used
- Legally
- Ethically and
- Intelligently
Wishing you the best!
Dawn
| Discussion: No Comments »
HR 4173 - Another Round of Threats Aimed at Owner Financing and the Note Business
June 22nd, 2010 categories: Note Business, Seller Financing
***
[watch video] Help protect your personal property rights: the ability to use owner financing to sell your property, the ability to buy a property without needing to qualify for new bank financing, your ability to defer capital gains and enjoy cash flow for retirement by carrying paper.
If HR 4173 goes through unamended, it will greatly harm the real estate industry and the private note business. Thank you, Eddie Speed, for sending around this email:
Dear Friend and Colleague:
With HR 4173 moving forward in conference, we need to contact the Representatives and Senators listed below, as they are Conferees and will have final decision as to the inclusion of Section 1073 and 1074. Please review the draft letter (ready to be cut and pasted to your letterhead) and the attached fact sheet. Both items should be e-mailed or faxed to your Congressman. (Sending to Congressmen outside your area will have little to no impact.) The 5th paragraph has a bolded sentence where you MUST personalize or remove the sentence.
Who is your Congressman?
Contact a Senator from your state, or in state where you do business. Contact a Representative if you have property or do business in their
district. If you are not sure check this site:
Please contact your Senator or Representative if they are on this list.
List of Conferees on HR 4173:
House Democrats:
- Financial Services Chairman Barney Frank of Massachusetts
- Howard L. Berman of California
- Leonard L. Boswell of Iowa
- John Conyers Jr. of Michigan
- Elijah E. Cummings of Maryland
- Luis V. Gutierrez of Illinois
- Paul E. Kanjorski of Pennsylvania
- Mary Jo Kilroy of Ohio
- Carolyn B. Maloney of New York
- Gregory W. Meeks of New York
- Dennis Moore of Kansas
- Gary Peters of Michigan
- Collin C. Peterson of Minnesota
- Bobby L. Rush of Illinois
- Heath Shuler of North Carolina
- Edolphus Towns of New York
- Nydia M. Velázquez of New York
- Maxine Waters of California
- Melvin Watt of North Carolina
- Henry A. Waxman of California
House Republicans:
- Financial Services ranking member Spencer Bachus of Alabama
- Joe L. Barton of Texas
- Judy Biggert of Illinois
- Shelley Moore Capito of West Virginia
- Scott Garrett of New Jersey
- Sam Graves of Missouri
- Jeb Hensarling of Texas
- Darrell Issa of California
- Frank D. Lucas of Oklahoma
- Ed Royce of California
- Lamar Smith of Texas
Senate Democrats:
- Banking, Housing and Urban Affairs Chairman Christopher J. Dodd of Connecticut
- Tom Harkin of Iowa
- Tim Johnson of South Dakota
- Patrick J. Leahy of Vermont
- Blanche Lincoln of Arkansas
- Jack Reed of Rhode Island
- Charles E. Schumer of New York
Senate Republicans:
- Banking, Housing and Urban Affairs ranking member Richard C. Shelby of Alabama
- Saxby Chambliss of Georgia
- Bob Corker of Tennessee
- Michael D. Crapo of Idaho
- Judd Gregg of New Hampshire
Donations to support this effort of a $100 or more would be appreciated, and may be sent to:
National Association to Protect Private Property Rights
1725 east South Lake Blvd. Ste. #102
South Lake, TX 76092
Don’t forget, here is the customizable letter to email or fax to your representative, and the fact sheet to attach to it:
When banks say NO, I say YES!
| Discussion: 3 Comments »
