Selling With Owner Financing
I'm in the process of rehabbing a home and ready to start advertising it. I spoke with someone who stated that I would possibly sell the house quicker by offering owner financing. He stated he would buy the note. However, I'm not sure how owner financing works since I will not be holding the note. Could anyone explain this to me and how the deal would be structured.
I paid $42,000 and financed with a hard money lender.
I owe the hard money lender $68,000
Rehab cost: $21,000
APR: $105,000
Basically there is a mortgage/note that is created at closing and then immediately sold to your note buyer. Most note buyers buy at 90% of face value or less so if you are going to go this route, expect some discount. If you are willing to wait for part of the profit, you can consider selling part of the note and keeping it for later but I wouldn't recommend this if you are starting out.
When you advertise owner financing you will get a lot of people that can qualify for a loan but didn't know how to structure it. My favorite thing to do is use the Nehemiah group which allows you, as the seller, to "gift" 1-6% of the purchase price to the company and they will in turn gift that money to your buyer. Most B-C lenders also allow seller concessions up to 6% so it is possible to have as much as 12% paid by the seller! The key with this is the apprasial. It must be high enough to give you the profit you need and also have room for the down payment assistance. http://www.getdownpayment.com
GOOD LUC
Yhagood, I would be happy to explain it in relation to the rehab seller financing program I work with.
I am assuming your $42k purchase price, and $21k in repairs is included in that $68,000 figure that is owed to the hard money lender, with an ARV of $105k based on appraisal.
The way it works is you sell the property at 5% down with seller financing (you could sell with zero down if you are willing to sell at $99,750 or less - this is 95% of appraised value).
Having said all that, the remaining 95% first lien, which is $99750 will be created AT closing and also purchased at closing, for cash.
You are essentially creating a buyable seller financed debt instrument secured by real estate. This asset can be purchased at closing.
The program I work with offers a minimum $7500 discount off the face value of the note. If your deal hits the criteria warranting this type of discount, and you took 5% down, then your cash at close in this example would be $97500 plus the first months mortgage payment, which is yours to keep at close as well. In this case, with an 8.5% rate, 360 month am, you would collect an additional $766.99, totalling $98,266.99.
The hard money lender is paid off, and you are left with gross cash of about $30k, and then you subtract applicable closing costs from that. When using this strategy, you will incur two small additional costs - 1. Assignment fee of $25-$50 roughly, and 2. Lenders title insurance policy, which if you can piggyback its creation onto the buyers owner policy, the title co. will most times charge a couple hundred bucks.
Using this method can definitely help the home to sell quicker, becuase you are enlarging the pool of buyers, you are bypassing any potential title seasoning issues with banks, avoiding the need for price reductions to compete, or the need for seller seconds.
Hope this helps, my best, Dave