BiggerPockets

and I could use some advice on some options I'm considering.

I got this place for $50K in '03 and sold it the day of closing for $65K without lifting anything but a pen. Now 7 1/2 years later my buyers need to upsize but the economics of the small town make it tough to get conventional financing for purchase. A couple of years ago I still had 8 seller financed sales in town but 3 have refinanced since late 2007.

Because they had a fair amount of traffic in the high $70K range, both when trying to FSBO and had it listed for $83K, later reduced to $79K and got traffic, but everyone was looking for seller financing. These guys don't have a pot to pee in so they don't have the option and I'm not restructuring the mortgage so they can profit.

Anyway we have a deal for me to give them $2K, forgive their mortgage and resell it. They put the FSBO sign back in the yard with my number and I've had a few interested calls, one from somone who looked at it with the agent.

Since I'm going for $88,000 I'm no longer interested in getting a mere $2K downstroke so I'm considering some ways to goose that a bit when people often don't have big bucks to put down. Plus one year's insurance and the $400 for document preparation, which I do myself.

Some of the possibilities;

1. Make the first mortgage smaller, but use a few consecutive second mortgages at high interest rates. This would give them an incentive to pay those off quickly, while not making their payment real high "forever".

2. Delay the closing until they've paid me an few extra thousand $$. Since this is TX I can foreclose and get the place back about as quick as eviction and for the same amount of money.

Any other ideas?

I've got a couple of weeks to finalize since they're not ready to move out and I can't travel until after June 3rd anyway.

Thanks in advance.

Frank

Frank,

Another way you can structure the deal if you're looking for the most cash up front is to do this:

1. Create 2 mortgages, a 1st and a 2nd.
2. Write it so that the payment for the second goes to the first until the first is paid off. This makes your 1st more valuable, since the note will pay off faster and is collecting more per month.

So, for example, let's say you sold it for $88K and was able to get $8K down. A normal 2-note deal might look like this:

$60K 1st at 7% for 15 years = $539.30 a month, P&I
$20K 2nd at 9% for 15 years = $202.85 a month, P&I

In this scenario the 1st, with 12 months of seasoning, is probably worth somewhere around 70 cents on the dollar. $60,000 x .70 = $42,000. And you're looking at 15 years before you're paid off on the 2nd.

In my proposed scenario, you now direct that $202.85 towards the first, and now the 1st is paid off in 110 months, and is worth probably closer to 0.84 cents on the dollar.

The second gets paid the entire $742.15 per month starting in month 111 and gets paid off in roughly 30 months. Your payor is now making payments for only 140 months total, and you get your money back a looking sooner, resulting in a better overall yield.