How Sub2 used promissory note?

5 Replies

I know we can use a promissory note to pay the seller during the subject2 deal because the property have equity and positive cashflow but how do i know in the next 5-15 years i will have the money to pay back the seller without using my cash? (That's the point of using the note)

Originally posted by @Dante Goh :
Originally posted by @Bill Gulley:

Look up "amortization" and pay it off over time. :)

 Are you saying build equity and refinance to pay the seller?

 Yes, you need to look at the amortization schedule and find that point where you will have the required equity to refinance. This includes your down payment, principal paid and appreciation, forced by improvements or increased rents and market increase. 

If you can't hit 20% equity at the end of 3 years, it's not a good deal IMO. 

Additionally, you can consider cash flow, if you can pay yourself a management fee for the brain damage messing with it, additional cash can reduce the principal. 

With this strategy (or any other, like options) you need to be in a position to refinance or sell within 6 months, depending on how fast foreclosures get to a sale due to the due on sale clause. There is a risk and it does happen, so simply be prepared with a plan.

All roads lead to conventional financing unless you're going to sell in the short term. Generally, selling within 3 years, without rehabbing, won't make you wealthy. At some point with "seller financed" deals you need to obtain conventional financing, long term financing. Any long term lender will be going closely by conventional requirements. 

Even getting private money long term needs to be done with conventional loan thinking, you get granny to give you a 25 year note at a lower rate than what should have been paid with a fixed rate and you may well have issues ahead of you. 

Need to understand the difference between purchase money loans and refinancing, sub-to you are refinancing, options are purchase money, installment contracts are a combination of both underwriting requirements. Good luck :)   

Originally posted by @Bill Gulley :
Originally posted by @Dante Goh:
Originally posted by @Bill Gulley:

Look up "amortization" and pay it off over time. :)

 Are you saying build equity and refinance to pay the seller?

 Yes, you need to look at the amortization schedule and find that point where you will have the required equity to refinance. This includes your down payment, principal paid and appreciation, forced by improvements or increased rents and market increase. 

If you can't hit 20% equity at the end of 3 years, it's not a good deal IMO. 

Additionally, you can consider cash flow, if you can pay yourself a management fee for the brain damage messing with it, additional cash can reduce the principal. 

With this strategy (or any other, like options) you need to be in a position to refinance or sell within 6 months, depending on how fast foreclosures get to a sale due to the due on sale clause. There is a risk and it does happen, so simply be prepared with a plan.

All roads lead to conventional financing unless you're going to sell in the short term. Generally, selling within 3 years, without rehabbing, won't make you wealthy. At some point with "seller financed" deals you need to obtain conventional financing, long term financing. Any long term lender will be going closely by conventional requirements. 

Even getting private money long term needs to be done with conventional loan thinking, you get granny to give you a 25 year note at a lower rate than what should have been paid with a fixed rate and you may well have issues ahead of you. 

Need to understand the difference between purchase money loans and refinancing, sub-to you are refinancing, options are purchase money, installment contracts are a combination of both underwriting requirements. Good luck :)   

 Thank Bill