REISkills and Brian Gibbons

Selling Expensive Over 1 million dollar Homes With Notes

See my blog California Seller Financing here.

I create notes and market them for sale, so contact me!

Here is a 1.5 million house example of what I do:

Free and clear 1.5 mil
House appraises for $1.25
Tried to sell w Agent
Best offer 900K cash BEFORE the friggin commission!
Seller is pissed off, hates agents now

I come in at the point of expired
I explain it is not the Agent's fault
It is the Bank's fault
You need to Help the Buyer Buy or take the hit
Help the buyer buy and make 8% on the seller financed notes, or take a 30% or more hit ($450,000), with the sales commission.

"I will show you how to preserve your equity, and make 8%, with assurances and protections if there is a default, but you must learn how to help the buyer buy, Mr and Mrs Seller, AND preserve your hard earned equity."

I show the Sellers the traditional sales process, the agent puts the asking price into the listing - MLS, and then Price Reductions to "meet the market". "This is what the market is prepared to pay for your house", the Agent is trained to say.

Well, the Agent has not been trained in Seller Financing Notes!

I show the Sellers these numbers:

20% Down, some "just missed qualifying" Buyer-borrower is willing to put down
$300K cash
(3% Agents' commission comes out of that, with a note broker's fee of 1%).

The expertise comes in with:

- Drafting the notes (1st and 2nd mortgs - TDs) for a partial sale of the 1st (front end).
- Selling the notes to a note buyer (note buyer buys say 57 payments of the front end of the 1st for $300K payout)
- Seasoning of the payor is generally 6 months of buyer
- SAFE Act is followed as far as underwiting the Buyer (TIL, RESPA, etc).

Every one is happy here:

- Seller: gets 1.5 mil for the house, gets 8% interest on both notes, $300K cash now, $300K cash in 6 months, small second mortg TD cash flow, big first mortg TD cash flow resumes after 57 payments, avoids vacancy, closes in 8 weeks with some certainty, taxation as per Section 457 of the IRS Code.

Agent: gets 3% payday after finding an Owner Fianncing Buyer (20% down)

Note Broker gets 1% and any other consulting fee.

Home Buyer gets a no hassle, low points, low fees Private Financing Home Loan.

In California, we use Title Holding Trusts (Land Trust cousin) and Delayed Sales Trusts as additional Estate Planning Tools.

There is more info on my blog here on Bigger Pockets re: selling expensive homes with notes as a note creator - note broker. http://www.biggerpockets.com/blogs/3/blog_posts/7475

Brian

Free seller Financing Class - Brian Gibbons and Tim Mai

Be a part of this one-of-a-kind 4-module webinar bootcamp on How To Flip Seller-Financing Deals with Brian Gibbons and Tim Mai on June 15,16,17 and 22 for FREE

http://www.dodeals.com/promo/SFFrefer.php

Credit Report Enhancement

I do a lot of rent to own selling, and people do not understand:

CRAs (3 Credit Reporting Agencies)
FICO Score
FTC.gov and what they do to help consumers' credit reports

So I put this short video together...

Discusses what consumers can do to enhance their 3 credit reports...

http://www.vidmails.com/playback.php?pl=YmdpYmJvbnNfMTI2NzY3Njk3NzIwMy5mbHY5NzM3NTY=&crmid=1

Getting Referrals for Buyers and Sellers

I placed this video (see below) on my site.

Why video?

Well, I like talking to people and making it real.

I say the same thing every day. To Sellers, Buyers and BirdDogs.

Re: giving referral fees, I believe that:

- everyone knows somebody that knows somebody trying to sell a nice house.

- everyone knows somebody that knows somebody trying to buy a nice house.

- everyone knows somebody that knows somebody trying to increase their monthly income

So I give people the opportunity to earn a referral fee.

Video allows me to-

- connect with people

- save time

- leverage my time

So, what do you think of this video?

http://www.vidmails.com/playback.php?pl=YmdpYmJvbnNfMTI2NzMwNzEwNjA3OC5mbHY4NzE0Mzk=&crmid=1

What do you think? Home ownership - a right or a privilege?

Housing: Time to Pull the Plug on Government Support

Bloomberg BusinessWeek columnist Chris Farrell tells why tax policies and mortgage relief that artificially prop up home values are forestalling a real recovery

Read the article - http://www.businessweek.com/investor/content/feb2010/pi20100226_589467.htm

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Home ownership - a right or a privilege?

I think people should be taught about:

- How Credit Scores are built and what risks there are to harming them

- How to have a long term plan to be self-sufficient, whether it be budgeting for today or planning for the golden years (saving 20% of net).

FHA got into trouble with their 3% down, not enough skin in the game. Government can never do a great job underwriting 10s of millions of mortgages. And they are guaranteeing them against default?

MBA (Mortgage Bankers Association) is playing "duty of care professor" saying "Honor your Obligations! see http://www.nytimes.com/2010/01/10/magazine/10FOB-wwln-t.html

And TARP money is rescuing these same Mortgage Banks who wrote mortgages, made a profit, and sold the notes?

Compare this practice to Canada, whose banks manage and administer their own home loans, with no bail outs. Their foreclosure rate is really low, probably due to prudent underwriting. See http://www.businessweek.com/magazine/content/10_09/b4168072832439.htm

The Road to Hell is Paved with Good Intentions.

The MBA allowed liar loans and other lovely tools during the boom (or Sen. Dodd (CT) and his boys did).

There is a Silent Tsunami of foreclosures coming in 2010 and 2011. Especially with decrease of income and increasing of ARM payments due to resetting up 20% and more of current payment.

What do you think?

I think we got a 3 - 5 year mess, and "propping up the real estate market" is just dumb.

Brian, REISkills

Why I love Lease Option Assignments rather than Sandwich Lease Options

Why I Like Lease Option Assignments Instead Of Sandwich Lease Options

By: Brian Gibbons
Submitted: 01:35AM on Wednesday 24 February 2010 | Edit

The author has permitted the reprinting and redistribution of this article.
See our Terms of Use for more information on reproducing it.

Many people have heard of Lease Options, but using them daily in your REIBusiness has risk and reward.

Sandwich Lease Options are great tools, but there is risk when the Tenant Buyer does not pay you, the "sandwich" person and you are stuck paying the Lessor-Optionor.

In a Sandwich Lease Option, you as the middle man (aka master leasee):
- lease with an option as a principal, then
- sub lease and sub option.

You make cash profit on the difference of
1) lease payments,
2) option payments and
3) back end exercise payments.

The risk is to have the tenant buyer not pay you, so you are stuck with paying the seller - optionor/lessor.

Many have used a Performance Lease Option, where it is agreed that the if the sub-lessee does not pay you (the master lessee), you do not have to pay the owner. I find that as a tough request to make of the seller - owner.

What I do with lease options is Lease Option Assignments.

I offer to Lease Option the property from the seller, and Assign the deal.

Many sellers in this tough non-lending market just want a way to
- get a reasonable sales price on their home
- avoid a real estate Agent's 6% commission
- net as close to their asking price as possible after costs

The costs for a Seller to sell in this market:
Say for a $150,000 house
- 6% $9000 Agent
- 2% $3000 Closing Costs
- deductions of sales price 5% ($7,500) to 10% ($15,000) because of Buyer's Market

So the costs to sell may be from $19,000 to $27,000. That does not net the seller close to $150,000.

As far as buyers, people want a great well buildt house, safe neighborhood, great schools for their kids, and a well thought way to qualify for FHA Financing.

FHA has created tougher qualifying for home loans, increasing down payments from 3.5% to 10% (for FICO Scores 580 and below).

So what I do is use rent credits.

Example) We charge regular market rent.
If the Tenant pays on time, as an inducement, he - she receives a 50% rent credit, FOR THE 1st YEAR ONLY.

So for $1000 monthly rent paid on time, tenant would receive $500.
This is NOT CASH, only useful for when exercising the option.
If the Option is not exercised, then the rent credit has no value.

Say a house appraises for $150,000. And the seller allows rent credits to be used as a marketing tool to fill the house quickly with a qualified tenant buyer.

We offer the house at $155,000, with move in option payment of $5000.
Monthly Rent is $1000 per month, and Annual Rent is $12,000.
Maximum Rent Credits are 50% or $6000. This is a type of Seller Concession.

So the numbers....

$155,000 strike price
- $5000 option consideration at move in
- $6000 rent credits
---------------------------------------------
Seller nets $144,000 (if buyer pays closing costs).

We assign our deal for to the Tenant Buyer for $5000. That is our fee.

The Tenant Buyer gets:
A lease for 36 months (12 months with 2 extensions of 12 months)
$5000 option towards a down payment
$6000 towards purchasing the house (toward the down payment or decreasing the purchase price)

On a $150,000, a 10% down payment is $15,000.

The Downpayment Shortfall is $15,000 less $5000 less $6000 = $4000.
A budget is prepared to save the $4000 ASAP. $4000 divided by 36 months = $111.11 per month.

This way to home ownership by using a lease option is helpful to the
- home seller who wants to net a certain amount, and
- a home buyer that needs time to qualify for a FHA mortgage.

The real estate investor has little risk because he is out of the deal, unlike the sandwich where is at risk if the tenant buyer does not pay.