I have a 4 family with a FMV of 530k in NYC. I owe 325K. How should I owner finance by buyer who has no cash to put down but has excellent credit. (720+ fico)?
wrap around mortgage would work, or purchaser assumes your 325k first and you give him a second for the difference of the purchase price... personally i would do a wrap around that way you know the mortgage payments are being made because you are making them and at the same time you can make money on your mortgage on the interest difference. Example you pay 6.00% on your mortgage,the wrap around is 6.5%.
you can also do a lease option with credits every month. In five years there should be enough credits to be used for the downpayment. They should be able to get a mortgage by then...The advantage to you is if they default all you need to do is get possesion back..(eviction) if they default on the payments as owners then you'd have to foreclose and in New York that may take up to 1 year and possibly longer if they file bankruptcy.
So if i had a choice between a wrap around, assumption of the first with a second or a lease option i would use a lease option.
Well on the theory that mulitple suggestions are helpful (not at all sure this is the case) I wouldn't do it that way at all.
A 4 unit still qualifies as residential under the FNMA guidelines. This means your good-credit buyer can probably arrange 100%. Even if not I'd let them borrow all the money they can and give a small second to bridge any remaining needed cash.
This way you are off the note, your risk is limited to the amount of the second in case they default.
it all depends what you are trying to accomplish...for example if you are planning on deferring taxes on capital gains then a lease option would work than an immediate sale..if you need to make interest on your money then owner financing would work via wrap around . Minimal risk would be what commercialking suggested. But i personally do like the lease option method better...Title is held, taxes are deferred and the possibility that purchaser may not exercise option and you keep all money paid into account..downside you may have to evict and who knows in 5 years the market may go down and the property may not be worth the option.
I prefer C-King's method. But I have one concern and that is how do I sell the 2nd for cash with minimal discount? I intend to create a 2nd with a bridge of the diference plus add back her closing costs I paid for (in the seller concession). That will however, bring the combined loans slighlty over FMV.
again it depends on a number of factors. what is the interest rate on the mortgage, is the mortgage seasoned, how long is the mortgage for , what are market conditions like, what is the ltv. these factors can effect the discount..
Selling seconds for a mininmal discount is tough to do. I deal with first and second position notes and most seconds are considered throw away's. Unless your second lien has a good dp, good credit, good ltv, etc. you can expect a sizeable discount. I'm closing on a second right now that is selling for 40 cents on the dollar. Credit was at 541, 100%ltv, the first is alot bigger than the second, and the noteholder wants out. Plus your in the second position, so whoever owns the first is going to get paid first if they go into foreclosure or declare banktruptcy. If you, the noteholder, are not motivated and don't understand the discounts involved with seconds you will hurt your chances of selling it to a buyer. If you know this before hand you can make a deal happen. Now do all seconds go for 40 cents? No they don't. It depends on the stated above. If its a decent note with good terms then you can probably get more. Hope this helps.
Honestly I get the most cash investors by word of mouth. I would say start asking around to people you know and see if anyone is interested. I also suppoe this would depend on the amount you are looking to have them invest in. I would think t would help tremendously that you already have some results under your belt. Put together a prospectus type package so that you have something professional to give them.
You seem to understand the drawbacks. If you want to make a living listing and selling real estate, get a license. If you are primarily an investor I would advise against it.
The negatives to being a RE agent are indeed as you mentioned. It's the "disclosure" are lack therof that will get one strung up legally. In our litigious society, why would you want the headace of "full disclosure" looming over your deals. It's best to be an average Joe Blow finding deals and closing them less any agent related noise.
I am a real estate broker and investor. I started as a part time investor. I earned a license when I lost my full time job and decided to sell real estate until a better job came along. I buy from auctions,institutions (banks) or multiple listings where the seller is represented by another real estate agent. I avoid any purchase that would seem like I was taking an unfair atvantage of someone. As a broker my knowledge of paperwork, current laws and lenders have been a help. I did not plan my career this way and I may put my license in escrow as I do like investing much more than selling. Selling can make you loud rich; investing can make you quiet rich.
Hi,
rewardrisk, what you're saying is that it's really better not to have the license, right? If so that really confirms my exact feelings.
The reason I asked this question was because I had a RE license about 13 years ago that I let expire. Driving people all over on weekends was not my cup of tea.
I actually just sent in my application to retake the state exam. But now comes this question.
You see, I have 6 properties that I bought directly from the listing RE agents, giving them double commission, that's lots of money to pay. But I found out that not having the license gives the liberty to ask all kind of questions, RE agents can't dare ask, or to offer any price I feel fits my mold without any worries.
I'm in the market for more properties and I already have access to the MLS listings. By the way, by the time a good deal property hits the MLS, it would be already sold.
These days in CA the only way to buy is by finding pre foreclosures or blind motivated sellers. That's where a license really can hurt you.
Having said all that, I might not take that test after all, I hate exams
Am I doing the right thing?
Thanks
I have done a couple of great commercial deals together with a real estatebroker. He has indusrty knowledge, experience and was willing to put his money where his mouth is. The transactions were fully disclosed to the sellers - but the Brokerbeing in the thick of where all the deals are being done worked to our advantage.
I recently just go my CA Broker License. I got it because I feel that being involved in the industry and having an inside track on the type of deals I wan't to invest in will be very beneficial. Getting the deals before they hit the MLS is critical in this market.
One would obviously have to disclose that you are looking at the deal as a broker/investor.
I'm licensed for the sole purpose of doing my own loans and listing flips on the mls.
I can take a marginal deal and make it well worth my time, especially if i buy a listed property.
i always disclose that I'm licensed and it actually makes the homeowner feel better that someone in the deal knows what their doing. I never set the price and have sellers sign an addendum that they have come up with the sales price and are happy with it.
I have never seen a downside with having a license.
That's my same reasoning for getting the license. Access to the first listings in the office, saving on commission and now the new idea of the financing, thank for that, sounds great.
I was talking to a broker / investor that paid the seller's full asking price, but is being sued by the seller that thought the broker should have told him the real market price therefore taking advantage of his ignorance.
I know that's not fair, but this is what's happening out there. Even if they sign all kind of paperwork, they can still have the same argument.
Fortunately, not too many sellers, in this case, are willing or know that they can take a RE to court. On the other hand it only takes one case to break a small investor or RE agent.
Having said that, it's clear that many licensed RE investors are making many deals without any complaint. I think I might be making a mountain from a grain of sand.
Thanks for the follow up. I'm considering getting involved in mortgage especially for my own deals.
"Has this been beneficial to you?
What can you save on the loan side?"
Hey Benfin - You are able to get a rebate from the investor (lender) on your loans. I flip properties so I don't care what the interest rate is. I care about the cost involved. Let's say I'm getting a $500k loan and there's a 2% rebate to the broker: $500k x 2% = $10,000. I have the closing costs paid out of the rebate, approx. $3,500, leaving $6,500 profit. Let's say you have a 70/30 split with the owner, you receive a check for about $4,500. That's a month and a half's worth of payments. You end up with virtually no closing costs on the buy-side of your deal and you can make your first payment free.
"Are lenders willing to let you broker loans to yourself?"
No, they wont let you. However I can do a loan under my wife's name or have a buddy at the office put it under my name, but he's the agent. We do it for each other when needed.
Is their a big learning curve in mortgage brokerage?
No, it's really easy. Takes a couple days to learn what you need to take care of your own lending needs. Of course if you want to learn all the programs it takes time.
Check this out:
House pops up on the mls and I happen to know the agent. It's a little underpriced and I come in just a little lower than asking. I'm first in and the agent gets her seller to take it.
Purchase price: $440,000
Commission to me: $12,100
Money back from doing the loan: $4,000 (but I have to make a payment later, so I'll call it a wash).
Closing costs: paid for from loan
Okay, I'm $12,000 ahead.
I rehab at a cost of $15,000 and put in mls for $499,000. I sell for $497k in about a week.
2 1/2% commission to the buyers agent plus closing costs = $15,500.
This is what I mean when I say it turns a iffy deal into a decent deal when you can pick up commissions and avoid normal r.e. costs usually associated with a deal.
That's the real estate commission from the purchase and the rebate on the loan. I don't know about other states, but in Ca. it's the same license, so you can get the Realtor commission when you buy.
Benfin,
Just go interview with a couple mortgage brokers. They will let you earn while you learn because they make money off of you. I wouldn't tell them you just want to do your own loans. In fact, it will be pretty easy to do some refi's from friends and relatives when you start. Good luck!
Quote:
On 2005-01-09 20:44, povrtsux wrote:
I was talking to a broker / investor that paid the seller's full asking price, but is being sued by the seller that thought the broker should have told him the real market price therefore taking advantage of his ignorance.
These days anyone can sue for just about whatever reason. I doubt your friend is going to have any problem if he was up front and paid their asking price. I suspect your friend would have had the same problem if he wasn't an agent and there had been others involved. They could have tried suing their agent (or even the buyers agent) for the same reason. Doubt it would have gone anywhere but it's far too easy to make a complaint. It's the "I'm an idiot and they should have known it!" prosecution.
That said I'm more or less in the same boat. Both my wife and I are ready now to take the exam but bouncing back and forth about whether or not it's worth it.
wrap around mortgage would work, or purchaser assumes your 325k first and you give him a second for the difference of the purchase price... personally i would do a wrap around that way you know the mortgage payments are being made because you are making them and at the same time you can make money on your mortgage on the interest difference. Example you pay 6.00% on your mortgage,the wrap around is 6.5%.
you can also do a lease option with credits every month. In five years there should be enough credits to be used for the downpayment. They should be able to get a mortgage by then...The advantage to you is if they default all you need to do is get possesion back..(eviction) if they default on the payments as owners then you'd have to foreclose and in New York that may take up to 1 year and possibly longer if they file bankruptcy.
So if i had a choice between a wrap around, assumption of the first with a second or a lease option i would use a lease option.
Well on the theory that mulitple suggestions are helpful (not at all sure this is the case) I wouldn't do it that way at all.
A 4 unit still qualifies as residential under the FNMA guidelines. This means your good-credit buyer can probably arrange 100%. Even if not I'd let them borrow all the money they can and give a small second to bridge any remaining needed cash.
This way you are off the note, your risk is limited to the amount of the second in case they default.
it all depends what you are trying to accomplish...for example if you are planning on deferring taxes on capital gains then a lease option would work than an immediate sale..if you need to make interest on your money then owner financing would work via wrap around . Minimal risk would be what commercialking suggested. But i personally do like the lease option method better...Title is held, taxes are deferred and the possibility that purchaser may not exercise option and you keep all money paid into account..downside you may have to evict and who knows in 5 years the market may go down and the property may not be worth the option.
Thanks guys,
I prefer C-King's method. But I have one concern and that is how do I sell the 2nd for cash with minimal discount? I intend to create a 2nd with a bridge of the diference plus add back her closing costs I paid for (in the seller concession). That will however, bring the combined loans slighlty over FMV.
again it depends on a number of factors. what is the interest rate on the mortgage, is the mortgage seasoned, how long is the mortgage for , what are market conditions like, what is the ltv. these factors can effect the discount..
Selling seconds for a mininmal discount is tough to do. I deal with first and second position notes and most seconds are considered throw away's. Unless your second lien has a good dp, good credit, good ltv, etc. you can expect a sizeable discount. I'm closing on a second right now that is selling for 40 cents on the dollar. Credit was at 541, 100%ltv, the first is alot bigger than the second, and the noteholder wants out. Plus your in the second position, so whoever owns the first is going to get paid first if they go into foreclosure or declare banktruptcy. If you, the noteholder, are not motivated and don't understand the discounts involved with seconds you will hurt your chances of selling it to a buyer. If you know this before hand you can make a deal happen. Now do all seconds go for 40 cents? No they don't. It depends on the stated above. If its a decent note with good terms then you can probably get more. Hope this helps.
Nate
Find your local REI club. Advertise what you are doing there.[ Edited by reinatalie on Date 01/24/2005 ]
reinatalie:
Thank you for the suggestion. I will look into this.
JAV [ Edited by JAV on Date 01/25/2005 ]
Honestly I get the most cash investors by word of mouth. I would say start asking around to people you know and see if anyone is interested. I also suppoe this would depend on the amount you are looking to have them invest in. I would think t would help tremendously that you already have some results under your belt. Put together a prospectus type package so that you have something professional to give them.
Joe
I would add MLS access to the benefits.
You seem to understand the drawbacks. If you want to make a living listing and selling real estate, get a license. If you are primarily an investor I would advise against it.
The negatives to being a RE agent are indeed as you mentioned. It's the "disclosure" are lack therof that will get one strung up legally. In our litigious society, why would you want the headace of "full disclosure" looming over your deals. It's best to be an average Joe Blow finding deals and closing them less any agent related noise.
I am a real estate broker and investor. I started as a part time investor. I earned a license when I lost my full time job and decided to sell real estate until a better job came along. I buy from auctions,institutions (banks) or multiple listings where the seller is represented by another real estate agent. I avoid any purchase that would seem like I was taking an unfair atvantage of someone. As a broker my knowledge of paperwork, current laws and lenders have been a help. I did not plan my career this way and I may put my license in escrow as I do like investing much more than selling. Selling can make you loud rich; investing can make you quiet rich.
excellent response
Hi,
rewardrisk, what you're saying is that it's really better not to have the license, right? If so that really confirms my exact feelings.
The reason I asked this question was because I had a RE license about 13 years ago that I let expire. Driving people all over on weekends was not my cup of tea.
I actually just sent in my application to retake the state exam. But now comes this question.
You see, I have 6 properties that I bought directly from the listing RE agents, giving them double commission, that's lots of money to pay. But I found out that not having the license gives the liberty to ask all kind of questions, RE agents can't dare ask, or to offer any price I feel fits my mold without any worries.
I'm in the market for more properties and I already have access to the MLS listings. By the way, by the time a good deal property hits the MLS, it would be already sold.
These days in CA the only way to buy is by finding pre foreclosures or blind motivated sellers. That's where a license really can hurt you.
Having said all that, I might not take that test after all, I hate exams
Am I doing the right thing?
Thanks
Hi,
I have done a couple of great commercial deals together with a real estate broker. He has indusrty knowledge, experience and was willing to put his money where his mouth is. The transactions were fully disclosed to the sellers - but the Brokerbeing in the thick of where all the deals are being done worked to our advantage.
I recently just go my CA Broker License. I got it because I feel that being involved in the industry and having an inside track on the type of deals I wan't to invest in will be very beneficial. Getting the deals before they hit the MLS is critical in this market.
One would obviously have to disclose that you are looking at the deal as a broker/investor.
What do you think?
I'm licensed for the sole purpose of doing my own loans and listing flips on the mls.
I can take a marginal deal and make it well worth my time, especially if i buy a listed property.
i always disclose that I'm licensed and it actually makes the homeowner feel better that someone in the deal knows what their doing. I never set the price and have sellers sign an addendum that they have come up with the sales price and are happy with it.
I have never seen a downside with having a license.
Hey Regal:
Thanks for the follow up. I'm considering getting involved in mortgage especially for my own deals.
Has this been beneficial to you?
What can you save on the loan side?
Are lenders willing to let you broker loans to yourself?
Is their a big learning curve in mortgage brokerage?
Thanks for any help with this.
That's my same reasoning for getting the license. Access to the first listings in the office, saving on commission and now the new idea of the financing, thank for that, sounds great.
I was talking to a broker / investor that paid the seller's full asking price, but is being sued by the seller that thought the broker should have told him the real market price therefore taking advantage of his ignorance.
I know that's not fair, but this is what's happening out there. Even if they sign all kind of paperwork, they can still have the same argument.
Fortunately, not too many sellers, in this case, are willing or know that they can take a RE to court. On the other hand it only takes one case to break a small investor or RE agent.
Having said that, it's clear that many licensed RE investors are making many deals without any complaint. I think I might be making a mountain from a grain of sand.
Hey Regal:
Thanks for the follow up. I'm considering getting involved in mortgage especially for my own deals.
"Has this been beneficial to you?
What can you save on the loan side?"
Hey Benfin - You are able to get a rebate from the investor (lender) on your loans. I flip properties so I don't care what the interest rate is. I care about the cost involved. Let's say I'm getting a $500k loan and there's a 2% rebate to the broker: $500k x 2% = $10,000. I have the closing costs paid out of the rebate, approx. $3,500, leaving $6,500 profit. Let's say you have a 70/30 split with the owner, you receive a check for about $4,500. That's a month and a half's worth of payments. You end up with virtually no closing costs on the buy-side of your deal and you can make your first payment free.
"Are lenders willing to let you broker loans to yourself?"
No, they wont let you. However I can do a loan under my wife's name or have a buddy at the office put it under my name, but he's the agent. We do it for each other when needed.
Is their a big learning curve in mortgage brokerage?
No, it's really easy. Takes a couple days to learn what you need to take care of your own lending needs. Of course if you want to learn all the programs it takes time.
Check this out:
House pops up on the mls and I happen to know the agent. It's a little underpriced and I come in just a little lower than asking. I'm first in and the agent gets her seller to take it.
Purchase price: $440,000
Commission to me: $12,100
Money back from doing the loan: $4,000 (but I have to make a payment later, so I'll call it a wash).
Closing costs: paid for from loan
Okay, I'm $12,000 ahead.
I rehab at a cost of $15,000 and put in mls for $499,000. I sell for $497k in about a week.
2 1/2% commission to the buyers agent plus closing costs = $15,500.
497k - 15,500 = 481,500 - 15,000 rehab = 466,500
466,500 - 440,000 = 26,500
26,500 + 12,000 commission (buying) = $38,500 net profit.
This is what I mean when I say it turns a iffy deal into a decent deal when you can pick up commissions and avoid normal r.e. costs usually associated with a deal.
Question for Regal...
Re: $12,100 and $4,000
Is there a commission plus a rebate? Thanks.
Thanks for the info. Sounfds good to me. Just got to pick up the right properties.
What's the easiest way to get going learning the motgage brokering side?
Are there any decent training courses available?
Any advice on this would be appreciated.
giak1128,
That's the real estate commission from the purchase and the rebate on the loan. I don't know about other states, but in Ca. it's the same license, so you can get the Realtor commission when you buy.
Benfin,
Just go interview with a couple mortgage brokers. They will let you earn while you learn because they make money off of you. I wouldn't tell them you just want to do your own loans. In fact, it will be pretty easy to do some refi's from friends and relatives when you start. Good luck!
Quote:
On 2005-01-09 20:44, povrtsux wrote:
I was talking to a broker / investor that paid the seller's full asking price, but is being sued by the seller that thought the broker should have told him the real market price therefore taking advantage of his ignorance.
These days anyone can sue for just about whatever reason. I doubt your friend is going to have any problem if he was up front and paid their asking price. I suspect your friend would have had the same problem if he wasn't an agent and there had been others involved. They could have tried suing their agent (or even the buyers agent) for the same reason. Doubt it would have gone anywhere but it's far too easy to make a complaint. It's the "I'm an idiot and they should have known it!" prosecution.
That said I'm more or less in the same boat. Both my wife and I are ready now to take the exam but bouncing back and forth about whether or not it's worth it.