Specialist · Member since 2018 · 124 posts · 64 votes
Hello!
My specialization is in lease options (specifically short-term lease options), so I am used to giving sellers FULL market value.
Where I would like some support is for sellers that want WAYYYYYYY over full market value.
There are some sellers that want 200k+ over market. I am wondering if any creative finance strategies are applicable to these kinds of situations? For example: note is w/ seller (no bank), price amortized over 30 years , and no interest payments? And even no down payment. And if there is a down payment that is also given in monthly payments over time. Does the higher price no matter if I do NOT need to go to the bank and get a loan and the arrangement between the seller and I cashflows?
What I am worried about is if I want to re-fi at a later date, what happens when the property does not appraise for the price asked for?
Real Estate Agent · Boise, ID · Member since 2016 · 1k+ posts · 888 votes
4y
@Bria Johnson This is going to come down to terms and your plan for holding the property. If there is balloon on payment than price will matter, if not you could hold the note for term and once it was paid price doesn't matter as you own it out right. However if there is a balloon or call option than having the property appraise for the amount needed to pay the balance would be crucial.
For far out numbers if market was 200k and they wanted 400k and could do a no interest loan a 30 amortization would make payments 1,111.11 if you are positive it doesn't matter if you can hold for 30 years. However if they can call it or it is due in full in 5 years you would of only paid 16% of 400k and would be on the hook for remaining balance.
I feel like if someone wants wayyyyy over market value you are wasting you time on someone that will be unreasonable and difficult to work with.
Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes
4y
You're really trying to determine which of two options is better 1) buy another home at FMV (200K) and 2) buy this home at 100% over current FMV (400K). The solution to your problem is an amortization table, and possibly some projection of appreciation/time value of money etc.
Keeping it simple, if you buy at 200K with a 5% loan at 100% LTV (for simplicity) or 400K at 0% at 200% LTV when do the two amortizations reach an inflection point? You'll actually pay $13,500 more in total costs on the second option (see calc here) than if you pay interest on the first scenario. So then it becomes a discussion of actual DP req's time value of money etc. You could also include a theoretical appreciation to when would you achieve 20% LTV for a refi? You could model the solution in an excel spreadsheet to determine if that was something you wanted to pursue.
Specialist · Member since 2018 · 124 posts · 64 votes
4y
@Matt Devincenzo This calculator is quite awesome! Thank you so. much for shairng. I did not know a such thing existed. I will use this for furture analysis. I appreciate your response.
You're really trying to determine which of two options is better 1) buy another home at FMV (200K) and 2) buy this home at 100% over current FMV (400K). The solution to your problem is an amortization table, and possibly some projection of appreciation/time value of money etc.
Keeping it simple, if you buy at 200K with a 5% loan at 100% LTV (for simplicity) or 400K at 0% at 200% LTV when do the two amortizations reach an inflection point? You'll actually pay $13,500 more in total costs on the second option (see calc here) than if you pay interest on the first scenario. So then it becomes a discussion of actual DP req's time value of money etc. You could also include a theoretical appreciation to when would you achieve 20% LTV for a refi? You could model the solution in an excel spreadsheet to determine if that was something you wanted to pursue.