Note Techinque
Greetings All.......
I found the following article posted at another "Success Stories" creative real estate website. Can buying realestate with notes be as easy at this article portrays? I searched the web and found a few investers that do simultanious closings with a note that is not even seasoned. Please read the following article and see if you could find a flaw in this plan.
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I Didn't Put Up One Penny
by Neil Blatt
**Please See My Profile**
I ran an add that said:
"If you have found the house you want, but the bank won't give you enough money, a private person can help: xxx-xxx-xxxx"
Phone rang off the hook. Here is one deal.
The house appraised for 100,000. Original sellers would let it go for 80,000 because of divorce. Buyers couldn't qualify with local bank for more than 80% of 80,000.
Buyers had 8,000 for down payment and closing costs.
I didn't put up one penny. I bought the house for 80,000 and simultaneously resold it to the buyers at 100,000. Same closing. I gave the buyers an easy second mortgage.
The special bank bought the fresh note from me for slightly less than 80,000 (80% of the 100,000). The buyers made up the difference from their down payment.
Buyers paid me $3000 at closing to discount their second which I did.
Everyone was happy. These "no money down" deals can be done anywhere.
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What did he mean by this, I'm confused.
Buyers paid me $3000 at closing to discount their second which I did.
You could help many people with this technique!
Looking forward to your thoughts
Goofy1
Goofy,
First, this guy doesn't give you enough information to even determine if he actually made any money, so we don't know if it was a good deal or not.
Second, while this could work, the chances of it happening without a problem would be slim.
Let's break it down. Buyer has found a house but couldn't get financed, so calls the investor. Now it isn't said whether the seller had it listed for $80K or the investor had to negotiate to $80K from the $100K. This is the first pitfall. What do you think the chances are that your buyer would pick a house that had a motivated owner? Answer very slim.
Second problem. The buyers know what the owner is asking for the property. If it was $80K, then most would not be willing to pay an investor $20K + to get the house.
He said that he bought the house for $80K and sold for $100K, same closing. - Nope, don't work that way. Sorry.
As said before, not enough info on the loan/sell setup, but he said he sold the fresh note for 'slightly less than $80K' Now we don't know what 'slightly less' means but didn't he pay $80K?
Let's assume that he got $75K. Don't know where the $8K comes in from the buyer, but we'll again assume that the investor got all of it. That's $83K. $3K profit for no money is good right? But wait, no one paid closing costs. Well that would eat up $3K pretty fast.
The $3k to discount their second means that he agreed to take $3K for payment in full on his 2nd mortgage. Example: 2nd lien of $10K for 5 yrs @ 10% interest, or I'll take $3K now and consider it paid in full.
Roger