Creative financing- Deal or No deal?

9 Replies

 Wondering how I could structure this
I have a seller who has his ear opened to do a seller finance deal/ mortgage wrap. He has a tenant that's renting the property for 3+ years for $1000/month.The seller wants $80K for the property and its ARV is $100K in a nice area that could rent for $1100-$1200 / month.
Seller is willing to take $800 and give me what ever I rent out the unit for which right now would be $200.

Monthly Payment (PITI)- $700

Interest rate : unknown at the moment but could be 3.5 

Loan type: Conventional 

How could would you work this deal if you did creative financing?

@Jerrel Jones I'm not quite following here so I'll ask some questions:

  • Are you saying the seller is willing to provide you with a loan to purchase the home?
  • If so, where will you get your downpayment from?
  • You mentioned a "wrap" - a wrap is designed for someone else buying the property from you after you have an underlying note.  Is that part of this structure?
  • If you buy the home from the seller, you would then get the lease signed over to you.  You absolutely SHOULD NOT allow the previous owner to take any of that money.  If you owe the lender (the previous owner) a payment then you must make the payment on your own.
  • How do you know your payment already without knowing the rate of the loan?
  • Why are you referencing a conventional loan?

If you could help with those questions/scenarios that would help.  Thanks!

@Andrew Postell thank you for your reply this is my first time trying to do creative financing I’ve done wholesale deals. I’ll do my best to answer your questions below in order

•The seller already has an existing loan on the property. The seller is willing to do seller finance if he get his price of $80K.

• I’m hoping to get the down payment and sell the terms to an buy and hold investor who would like the cash flow. It’s currently rents for $1000 and could be $1200 for market rents.

• the wrap I was hoping I could structure if it made sense.

•You’re right about the rents I would need to have a lease for the current tenant in place and the owner would collect the rents. Which I don’t know if he would go for it.

• the numbers I referenced ( were provided by the seller such as his monthly payment of Principal, Interest,Taxes and Insurance of $700 and interest rate 3.5%)

• I was researching and seeing conventional is one the loans you do a wrap on. FHA you can't do it.

@Jerrel Jones so the owner is going to wrap his loan to you over the already existing loan?  Do I have that correct?

And then you are going to sell the property right after that? To another investor?

So what's in it for you to do this?  How are you going to make money here?

@Andrew Postell

I plan to wrap his mortgage.

The way I would make money would be on the downpayment and on the new terms to the buyer I would raise the interest rate which would create a spread that I could collect every month .

For example : New terms

Interest rate : 8%-10%

Down payment: $10K ( give the seller $3000)= I would make $7000 upfront

Seller current loan:

Interest rate : 3.5%

@Jerrel Jones   For the investor coming into this to buy from you, putting down $10k on a $80k house, interest rate of 8 - 10%, why would an investor even consider this?  The investor could just out and buy a slightly less expensive investment property (the $10k would be a good downpayment) and get a 4% rate.

Having a mortgage at 10% will kill you in interest in the long run.

@Jerrel Jones   Personally I think it's a very complicated deal that I would pass on.  I've done a number of seller financed deals as a buyer, where the seller owns the place free and clear, so I get title and the seller holds the note - very clean.  Those are the deals I seek out.

Anytime you do a transaction where the seller does not own the place free and clear (a wrap), it's far more complicated.  To then try to sell it to someone else as an additional step, becomes further complicated.  IMO.

- Tom

@Tom S. I think your right Tom after doing more researching an understanding seller finance a little more Free and Clear seems to be more cleaner and if the buyer defaults for any reason at least the seller won’t have a mortgage owned by a lender which could much messer.

Plus after thinking about this deal selling the note to a investor at a higher interest wouldn’t make sense for them.

Thank you for your feedback

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