Real Estate Investor · Gainesville, FL · Member since 2008 · 296 posts · 7 votes
18y
I love this method. I bought a house a couple of months ago from a lady that owned it outright and she agreed to hold the financing for a year with a little bit down.
I think this is one of the simpliest and most often overlooked way to buy RE. Its even better if you are a new investor.
Plus it is far easier to negotiate with a seller who stands to make a lot of money either way, than with a bank or HML.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
18y
You've never heard of "wraps"? Or lease option, which is a form of owner financing? I believe an AITD (all inclusive trust deed) can also be done where the seller has existing financing in place.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
18y
You wouldn't need a wrap with an assumable loan, just let them assume it. I've not actually attempted a wrap, only heard them discussed. The idea, as I understand it, is that you sell the property at a higher price than your loan balance, get some amount of down payment, and charge a higher interest rate than you're paying. Then, you're pocketing the difference between the two payments and the down payment, less whatever you put in to start. You're still responsible for making your payments, though I've also heard of doing that through an escrow service. The buyer's payments go to the escrow service, who then pays your note and sends you the difference.
Real Estate Consultant · Member since 2008 · 792 posts · 30 votes
18y
That was my general understanding as well, I just thought that "waps" generally triggered "due on sale" clauses. I thought the only time that this wasn't the case was in occurence of "assumable" loans (non-qualifying at that).
I've never done one though, so i might be way off base.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
18y
Wraps (you're wrapping one mortgage with another), subject tos, and AITDs all trigger the due on sale clause. Whether the bank will actually do anything is a different question. Personally, I'm not terribly comfortable with any of these techniques. But, I've asked numerous people, including folks who do do these, if they have every been called. It would appear to be a very rare occurance (dang, another word I can't get close enough for the spell checker to fix).
Now, if the economy kind of gets its act together so the banks wouldn't incurr huge costs associated with another reason to do foreclosures (that's what they would need to do if you didn't pay the loan when it was called), or if interest rates were to go through the roof again and the banks wanted to get rid of these low rate mortgages (the reason this clause exists and there are no more assumable mortgages), then I think we could end up seeing a bunch of these called. But for now, if you're making the payments, I would think the banks would have bigger fish to fry.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
18y
I agree Jon. Good explanation. In addition, utilizing a land trust could avoid the possibility of a due on sale clause as only the beneficiary changes and no official title change has occured (the way I understand it)
Also, if an investment is held in an entity such as an LLC, buyer could purchase the "shares" of the company which hold the asset, so no tiltle change shows up. Of course, with some investigating from the bank, they could find out that the original owner of the LLC has changed and then have the right of the due on sale clause. Again, this clause is rarely used and I have yet to hear of an investor who suffered from it. I do know of an investor where the bank made the threat, the investor called there bluff and said "go ahead, I can't pay it and you will have to foreclose" and the bank decided not to as they were receiving timely payments.
Real Estate Investor · Jersey City, NJ · Member since 2008 · 203 posts · 1 vote
18y
Ok, so lets say the owner is willing to finance only for 12 months (at which point the property would then be conventionally financed). When would the property be moved into an LLC? In other words, if the eventual mortgage is going to be personally guaranteed (and not financed through the LLC), doesn't the prop need to be "outside" of the LLC, then financed, then moved into the LLC?
Is this a case where the property needs to be moved it into the LLC when originally acquired, then removed for purposes of financing (after 12 months), then moved back into the LLC again once financed?