Just recently started researching getting into rei. There is a duplex near me in an excellent location that has dropped in price like 35% in the last 4 months after slow drops for a year. Looks like the seller is getting desperate. Gross rents of 1000 and if the price drops again next month it'll be down to around 46k. Im thinking of possibly offering around 41-43 after the next drop but would probably need seller financing right now. What is a normal down payment and interest rates in a situation like this? Or are there just too many variables to know without asking the seller?
When looking for seller financing it is best to look for the longest terms, lower down payments and lower rates. You can always pay it off early if you have a windfall. Cash is king right now. Find out what the problems are and solve them.
If seller financing is already being offered there is usually a reason why. You will find that a lot of deals like this are being offered by investors that bought the property to make money and are now offering seller financing. This is not the type of situation you are looking for as an investor. Another investor has already marked the deal up.
You want to find motivated sellers, find their pain and solve the problem to create a win win situation. If you can;t create a win-win, walk away. Find the hot buttons and trade price for terms. Everything is negotiable...
"There are too many variables to know without asking the seller."
Think win/win with a seller that is willing to do a deep discount for cash and you have cash, or a seller that wants income long term and doen't need much down and you don't have much down.
If you can meet his needs chances are better he can meet yours. Depending on your financial statement and ability to be flexible, the seller will be more willing to be flexible too. From a sellers point of view a healthy down, 20% or so is desirable. From a buyers point of view that might be desirable or it may not.
Talk to the seller, ask questions then go away and think things over. Report back and people here will help you from there.
yep, it's best to find out what the seller wants/needs...does he like the monthly income from rents but doesn't like the hassle of landlording?? if so, that's a perfect situation to offer financing...try to find out what he owes on the property, or what he needs to move on...this is easiest if the property isn't on the MLS as realtors have a way of messing these discussions up....creative real estate confuses most of them!
I have bought properties with as little as 2K down and at most 5K down. I've been taught to either offer the price they want with the terms I want or ask for the price I want with the terms they want...
I personally start the ball rolling by making an offer where I ask for seller financing. If it's 40K+, offer 2K down and ask for 6% or less for financing...that's typical for an investment property (2% higher than O/O home).
When looking for seller financing it is best to look for the longest terms, lower down payments and lower rates. You can always pay it off early if you have a windfall. Cash is king right now. Find out what the problems are and solve them.
If seller financing is already being offered there is usually a reason why. You will find that a lot of deals like this are being offered by investors that bought the property to make money and are now offering seller financing. This is not the type of situation you are looking for as an investor. Another investor has already marked the deal up.
You want to find motivated sellers, find their pain and solve the problem to create a win win situation. If you can;t create a win-win, walk away. Find the hot buttons and trade price for terms. Everything is negotiable...
Does the seller have a mortgage on the property or does he own it free and clear? If he has a mortgage you will buy subject-to and/or create another note that is subordinated for some of this equity.
Does the seller have a mortgage on the property or does he own it free and clear? If he has a mortgage you will buy subject-to and/or create another note that is subordinated for some of this equity.
Okay thanks. I haven;t talked to the seller yet but the record shows it was purchased in 2003 so im guessing that it hasn't been paid off yet.
Well I suspect there won't be a whole lot of equity for him to finance with then. I generally do an equity presentation and subtract out the normal selling costs, subtract the debt he tells you he owes, and arrive at an "equity" number which is what he will take home at closing.
From that point you can make several offers to buy the equity at a discount while taking the property subject-to. I would suggest you study subject-to threads on the forums if you are not familiar with the technique and the paperwork involved.
With a phone call to customer service to your title co. you can get the recorded mortgage information. Sometimes just a phone call like this can save a lot of time not bothering with over-mortgaged properties.
Glad to see the great comments. As to the down payment, I have done deals with nothing down and to over 20%. The motivation of the seller and their finacial needs will have alot to do with that, but also your position will be an influence as well. Someone selling investment properties has probably been around the block a couple times and will look to your ability to pay to consider the down payment and terms.
If you are a strong buyer, you can get by with the nothing down or 2K deals more often (not saying it's impossible if you're not). If you are new (especially when Realtors are involved) you may be pushed for more skin in the game.
The more you sell your ability to do the deal as agreed the better off you'll be, but don't scare them with hype.
As to terms, balloons are usually 3 to 5 years, but can be longer. Rates can be all over the place, a couple points above the going bank rate should be the limit. No prepayment penalties are customary, and may well be reuired in your state. If there is little down, escrows for taxes and insurance to a thrid party loan servicer may be required (it may be required on the underlying note). Default provisions may be designed by state law, but many times, providing a deed-in-lieu-of-foreclosure (quit claim deed) held in escrow to be filed after thirty consecutive days of default in payment can be something that makes it more attractive to a seller and can be a trade-off for a lower rate or less in the down payment.
And, in the pre-payment realm, having a penalty equal to the tax liability (especially in the even of default) can be an issue. If there is a default and the seller takes the property, for tax purposes, the note is treated as if it has been fully paid and the lender will have taxes due. So, if you see this, don't baluk as it may only apply in a default situation.
As mentioned, read the sub-2 forums here and follow my advice there! LOL Good luck...
Owner financing I never thought it was possible, until I cam across two homes one was almost paid for the other had a small balance...
Long story short, I got a good price on the one, with a 4% interest rate loan and the other believe it or not the price was pretty good and the interest was a big fat beautiful 0%,
And this was a good home in a nice area, there is a God
Yes. Not exactly what you'd think though lol. Im reevaluating my direction. Im 19 and have already failed in 2 business ventures. Under-capitalization both times. I feel if I got into something now id be cutting it close. I dont wanna make that mistake again.
Im gonna hold off on any rei for awhile and go onto an oil rig. Know a guy who can get me in. Will take home after tax between 6-8k a month. And me being 19 with no bills and only a few thousand left on prev loans Ill be able to save it all. Move back into the parents when not working and hopefully be able to pay cash for my first property sometime late this year. Im unbelievably excited!
Just study read study read. The more you're educated the easier REI will be. You'll be back in no time if REI if what you really want in life. Just invest time into education. Best of luck!