National Real Estate Note Buyers

In our last post we discussed how not knowing the buyer’s credit can have a negative effect on how much an investor quotes on a note.

Now, you don’t have much control over the buyer’s credit rating, but you do have control over the Interest Rate you set when structuring a note. Below are two scenarios of how the interest rate can affect the cash received when a note is sold to an investor.

Both notes are the same in terms of the buyer’s credit, the down payment and the property value. However, one note is structured with a 6.0% interest rate and the other with an 8.5% interest rate.

The note investor wants a 15% yield-on-investment.

SCENARIO ONE

• Note: $150,000
• Rate: 6.0%
• Term: 180 months
• Monthly Payment: $1,265.79
• Payments Made: 12
• Note Balance: $143,637.50
• Investor Quote: $84,390.65
• Discount: 41.25%

• Note: $150,000
• Rate: 8.5%
• Term: 180 months
• Monthly Payment: $1,477.11
• Payments Made: 12
• Note Balance: $144,826.21
• Investor Quote: $99,163.85
• Discount: 31.53%

As seen above, the note with the higher interest rate receives $14,773.00 more CASH than the note structured at only 6.0% interest rate, 15% more cash to the seller!

Once again, it’s your cash and equity that you’re deferring down the road by offering the buyer special financing.

Always structure your note as if you’ll sell it for cash some day.

The above title seems like a very logical step for a seller to do when taking back an owner financed note... right?

Well, our experience as real estate note investors shows that very few sellers run even a cursory credit check on their buyers, and hardly any do any kind of employment or background check.

Now, that's all well and good if your buyer makes his payments on time and you have no intention of selling your note any time in the future. But, when a seller comes to us to sell his or her note, not knowing the buyer's credit becomes a real problem.

Typically, when we ask what the buyer's credit is, the seller will say it's “good”. When we ask for the buyer's FICO score, they have absolutely no idea what it is. So, how do they know the buyer's credit is “good”? We further ask them when they last ran a credit check on the buyer, and they say that they never did run one! Amazing!

So, how does this affect the purchase value of the seller's note? Well, we can only issue a preliminary quote based on the information the seller gives us. At some point in our due diligence, we must run a credit check on the buyer.  Almost 60% of the time, we find that the buyer's credit is not “good”... sometimes below 620 or even lower.

At that point we have to either lower our full purchase quotation considerably or only buy a portion of the note. The seller of course is offended, and blames us for the note's lower value.

The bottom line here is... if you're offering a buyer owner financing by being the lender, you have every right to get their information up front on a credit application, and to check their credit, employment and payment history.

Never sign a purchase agreement or promissory note until you know the buyer's creditworthiness.

Additionally, you should periodically run a new credit check to make certain that the buyer's credit is still good... you do not want to go through a foreclosure.

Remember, as the seller, you're the one giving up your cash and equity for several years by offering the buyer financing they could not obtain conventionally.

Owner financing often produces a winning situation for both the homeowner who is selling the property and for the buyer who is purchasing the property.

Owner financing may be defined as the situation when a seller is willing to help finance a real estate transaction by creating a loan for the entire purchase if they own the home outright or by creating a loan for part of the purchase price when there is already an existing loan on the property.

There are several benefits to the seller and buyer when an owner financed transaction is used...

For one, the transaction may proceed more quickly and easily than when conventional financing is used because there are fewer companies, fewer people, and fewer steps involved.

For another, the seller is more apt to receive a higher sales price, and the seller will receive payments and interest over a long period of time.

There are tax savings realized by selling under this installment plan.

Additionally, the buyer will realize savings by avoiding loan fees and lender charges. Also, for the 20% of prospective homebuyers who cannot qualify for a conventional mortgage loan, owner financing is a wonderful way for them to be able to own the home.

There are a few potential disadvantages to owner financing to consider...

For one, if the buyer defaults on the loan the seller will have to initiate foreclosure proceedings. This can be costly, time consuming, and require work that the seller might rather avoid. Of course, after the foreclosure the property can be sold again, an advantage for some owners and a disadvantage for other owners.

Additionally, the interest income generated by the loan will be subject to taxes, which could be a disadvantage to a seller who is in a higher tax bracket.

Also, the seller does not receive cash for their equity immediately, but rather will receive their equity in installment payments over time. This is a disadvantage if the seller has need for a large sum to be used in the near future.

Here are some tips for the seller and the buyer to consider when negotiating an owner financed transaction...

The seller should research the buyer's creditworthiness and ask numerous questions to become confident that the buyer can fulfill their obligation... I cannot empasize this enough!

The buyer should provide a written explanation of any problems that appear on their credit report. The buyer should research the local housing market and the condition of the home to become confident that the home is priced fairly and is without major problems.

Also, the seller should verify that the new owner is making all insurance and property tax payments. A proof of payment provision should be included in the sales contract.

Lastly, the seller should require the buyer to stay ahead on payments, even submitting post dated checks, so that the seller has confidence that foreclosure will not become necessary in the future.

An owner financed home sale can be a winning situation for both seller and buyer. It is important, however, that the seller and the buyer do their due diligence in order to reduce possible risks.

Please feel free to contact at any time to discuss seller financing.

Due to poor economic conditions in the US, the real estate market is a strong buyers’ market. You or someone you know may be looking to buy real estate property either for primary residence or for investment.

This is the best time to buy real estate but you must exercise caution during this process. If you conduct proper due diligence, then you can save a lot of money and trouble for yourself.

An experienced realtor may help you with such due diligence but if you are an investor purchasing the property directly from the homeowner, then the information provided here will help you conduct a thorough due diligence.

The most important aspect of home buying is not being emotionally attached to a property before purchasing it. Be prepared to walk away from a property if you determine that there are issues that require a lot of time and money to deal with.

Here are eight steps to successful due diligence:

1. Property Condition Report: Ask for a property condition report. If there are irreversible damages due to mold or termites, then it is best to stay away from that property. Depending on where you live, if there are termite damages, it is a good idea to look elsewhere. Termites are not a problem in colder regions but in warmer regions these can cause a lot of damage to the house and the foundation.

Mold and termite damages can be fixed and but it is not worth the risk and effort. Since there are plenty of properties available, it is much easier to find properties that do not have such issues.

2. Property Inspection: Ensure that the property inspection is done from a certified property inspector. Compare rates from various property inspectors and also check for references. It is a good idea to ask family, friends or coworkers if they know a good property inspector.

Remember to enlist services from a certified property inspector only.

3. Homeowners / Flood Insurance: Check on the availability and cost of homeowner’s insurance. Cost is one major factor but there are some situations, where the property may not qualify for insurance! If a property does not qualify for insurance, then avoid this property. Look on the map to determine if flood insurance is required.

If the property is very close to rivers, lakes or an ocean, then it may be a good idea to obtain flood insurance. In addition, ask around in the neighborhood to see if flood insurance is needed or not.

4. Property Code and Zoning Violations: If there are any code violations or non-compliance to the zoning laws, then determine what needs to be done to fix it. Sometimes a small penalty and some remodeling to the property can make the property compliant to the building codes and zoning laws; in other cases these penalties and money required to remodel the property to make it compliant maybe very high.

You can request the seller to make the property compliant before the purchase. This request can be noted in the offer to purchase and/or addendum documents. If the seller does not agree, then it is best to just walk away from this property.

5. Title Issues: Check for complete ownership of the property. You may be dealing with one person while visiting the property and negotiating the price but while reviewing the title you realize that there are multiple owners. Here, you have to name all the owners in the offer to purchase and also get consent (signatures) from all of them to accept your offer.

Check for liens on the title. You can request the seller to pay for the title insurance in the offer. Enlisting services of a reputed title company can save you a lot of trouble from title issues.

6. Home Warranty: Request for a one-year warranty on the home from your seller. Such requests can be made in the offer to purchase. Usually it is $500 to $1000 for one year. Most home warranties do not cover roof damages but it covers plumbing and a few other major issues that can cost a fortune if repaired at your own expenses.

After you obtain the home warranty, check for all these issues in the first year and report it promptly and get them fixed while the warranty is still active.

7. Hazardous Wastes on Premises: If the property used to be a factory whose waste materials were hazardous, then check for that. These wastes can be cleaned from the property.

You can request the seller to remove all such wastes at his/her cost. This request can be mentioned in the offer to purchase and/or the addendum.

8. Property taxes: Determine the yearly property taxes. All the property taxes are prorated. Usually the offer to purchase includes verbiage to prorate the taxes i.e., the seller to pay the taxes for the period he/she owned the property and then onwards the new owner pays the taxes.

If the offer to purchase document does not contain the verbiage to prorate the taxes, then ensure that it is included. If you purchase the property for less than the city assessment, then you can visit the county office with the title and sale price to request a reduction in taxes - this can save you a lot of money in taxes.

Due diligence is a responsibility of the investor.

This is the key to purchasing real estate without running into major issues. Enlisting services from an experienced certified property inspector and title company can reduce your work drastically and you can successfully purchase real estate.

The Power is Yours to Sell Now

There are many benefits for both buyer and seller in a “no bank” owner/investor finance sale. Perhaps the most significant is the ability to sell the home faster than can be done in normal channels.

In this post we will attempt to detail how to use this amazing new tool to help you with your sale!

First let’s cover some of the basics of how to create a good note. These are items to pay close attention to because this is how the contract needs to be created.

When you advertise, note seller finance or owner will finance in the ad. No bank qualifying! This will bring potential buyers who will need creative financing and can’t get in otherwise.

Benefits of seller financing to Buyers:

• Easier qualifying

• No bank verification
  
  
• No points or junk fees
  
  
• Faster close
  
  
• Start home ownership
  
  
• Credit fix (bonus)

Sales price on a seller financed note should always be the TOP price possible. You are offering special financing. It is not a bank giving a loan and you know how hard it is to find such a loan anyway.

Interest rate on a single family home should always be 3% to 4% higher than conventional mortgage rates. We see many notes where the seller structured the note with a low interrest rate, making it harder to sell.

Always require that a credit check be pulled before sale... let me repeat... check the buyer's credit!

This always is a sticking point on notes we evaluate...the seller has no idea what the buyer's credit score is, so when we do our due diligence, we some times have to adjust our quote DOWN, or if the credit is poor... walk away.

The FICO score does not need to be perfect, but we do want to see what it is and we may even be able to help them improve it. We have a division that can do both the credit check and correction.

Seller benefits:

• Market price for your home

• Faster sale

• More potential buyers

• No hassle with long term payments

• Credit correction if your buyer needs it

The note created can be sold in full for maximum cash within 1-3 months, or in part for the maximum overall return depending on the needs of the seller at the time.

Contact us on help structuring your seller financed note.

Why owner finance?

Owner financing is one of the fastest ways to get your property sold. This is well understood in the real estate industry.

The only downside to this idea is that as the seller you have to hold the paper and hope you get paid. For many that is too much worry and complication.

However in today’s market you can let the power of Owner Financing work for you without all the worry... get what you want when you want it!

We have a national organization of private and institutional investors waiting to buy your note as soon as it is created.

That’s right, you can sell your home with owner financing  and not have the stress or worry about holding the note long term. We're sure we have a plan that will work for you.

Use a Note investor's Money to Help Buyers Buy Your Home...

This can be accomplished through the power of Temporary Seller Financing.

These are the basic steps:

• You sell the property for appraised value and get a down payment.

• Create a Real Estate sales contract and note with the terms of the sale outlined

• Then we can buy that contract from you after the one to three payments has been received (we no longer do simultaneous closings).

When we buy the note we will do all the processing for you to bring you the cash you need. If you feel that you want to get a better return than just the one time sale, then we will discuss with you the opportunities that are available for you by selling a portion of your note. All purchases are done through our Underwriting Company and a bonded Escrow service.

With our expertise in the secondary Mortgage industry we can find a plan that will work for your situation. We are able to structure a purchase of your note for you that will best suit you.

If you need all of your cash right away then we will show you how to create a contract that will work for your buyer and still get you the highest yield when you walk away.

If you would like to find out how to maximize your overall return then we can show you several options that will allow you to make more money than the sell of your home.

This can be done through the power of interest working in your favor. With this powerful option you take a lump sum up front and a second payment down the road that will net you more than your actual sell!

We are waiting to serve you and we will be happy to explain the process to you or present you with our Free Financial Report showing you how to structure your note and your expected return.

You deserve to know how to maximize your return from your investment and we are confident that we can show you how to do that.

Please contact us today and let us offer you a solution.