Seller-Financing Hybrid Strategies

[Justin Louie]

I recently started a forum topic about getting advice on starting out.

http://www.biggerpockets.com/forums/12/topics/2066...

You can find that post here.

As I was reading some responses, i was wondering if this strategy is something someone has done before and if it is even a valid idea. I know I am a beginner and new to real estate. Therefore, this may be a stupid question or idea. If it is, please let me know. 

I know that laws differ across the country, but it is possible to acquire a property via seller financing and then say after a few years, you want to "exit." Can one exit via another seller-financing arrangement? I think I am envisioning almost like a lease-option sandwich sort of idea. Where the monthly payment you agree to sell the property for is higher than what you're paying monthly to the original owner? You could make the difference on that spread, but since seller-financing tends to have more potential for flexibility in terms, I could see that you could get a property. If this is possible, I could see how netting a positive cash flow on a property you don't own anymore can help. You would be able to help the original owner by ensuring they get their monthly income and not rack up a huge tax bill on a sale. One could then use the down from the second sale to leverage into bigger and better income property. 

[Rick H.]

Focus on simple concepts first (walk before you run).

Yes, it's possible to purchase a property from a seller using seller financing and subsequently resell at a profit. 

Where it gets dangerous is when you try to resell to an end user as buyer. Lots to go wrong and many rules to follow. 

[Bill Gulley]

I can see I really need to do blogs instead of forum posts that get lost in the smoke. 

Somewhere on BP, I saw that some seller financing blog or podcast or something was pulled because it suggested illegal activities, bravo BP! After I comment, I'll look that one up. 

Yes, you can buy with seller financing. Yes, you could do a wrap transaction but with the original lender's or note holder's consent. Now, the slick operator thinks "oh, I won't have a due on sale clause in my seller financed note!" (You probably will have if the seller understands financing or they ran it by their attorney). But, you have another issue, a note is a bi-lateral contract, they may not be assigned or assumed without the lender's consent as they always have the right not to extend credit.

Thinking you're going for an interest spread gets more complicated than folks think, your amortizations and contributions to principal will not match, unless the two contracts are made together. Now loan servicing laws, tax reporting kick in to cause you problems.

If you want to sell with an assumption of an underlying loan, with consent, make a second mortgage at a higher rate, don't try to "blend" different rates, amounts and amortizations. :)

[Brian Gibbons]

Are you communicating that you should not "buy on a wrap and sell on a wrap" without getting the ok of the lender @Bill Gulley?

[Justin Louie]

@Rick H. Again, thanks for your input here and on my other thread. If you do the blogs about this stuff, I would really appreciate a link to it. I am not looking to try and break the law nor am I telling anyone to do so. I'm searching for information, answers, and hopefully a little direction. Sounds like I'll be needing that attorney to sort through stuff like this.

[Bill Gulley]

@Justin Louie

 I understand , you're welcome, any time!

@Brian Gibbons

Yes, seller financing is an installment arrangement, you're paying the grantor/vendor it's not a purchase money loan but equity financed loan. You might sell Sub-To with a second, but the loan is a bi-lateral agreement. :)